How does a property auction really work?

Posted on Oct 28, 2019 by Jason Dunn   |   Categories: Property & Conveyancing

The first thing you must do when attending an auction is register with the vendor’s agent who will then give you a bidder’s number. Once the auction commences the auctioneer will accept bids from potential buyers and keep track of the current bid.

Prior to the auction, the vendor will nominate a reserve price, which is usually not advertised. If the bidding exceeds the reserve, the property is sold at the fall of the hammer. If you are the successful bidder, you will then be required to sign the contract and pay the deposit there and then.

One critical difference between an auction and private sale is that there is no cooling-off period. There is also no cooling-off period if the property does not sell at auction but contracts are exchanged on the same day as the auction.

If you are bidding at an auction, you must be prepared to exchange contracts and pay the deposit on the day and have the means to complete the purchase or hold the necessary finance otherwise you may forfeit your deposit and be liable for damages.

On the day of the auction you should take the opportunity to have a final look at the property, review the contract and make yourself familiar with the auction rules. As there is no cooling-off period, it is important that prior to the auction you have completed all necessary inspection such as pest and building and strata records, and have had a solicitor review the proposed contract and provide the necessary legal advice.

Agents must display certain conditions prior to the auction and are also required to give all potential bidders a copy of the NSW Fair Trading Bidder’s guide before the auction. These conditions are set out in the guide, which is also a great source of information for first time bidders and can be downloaded free from the following link:

https://www.fairtrading.nsw.gov.au/housing-and-property/buying-and-selling-property/buying-a-property/bidders-guide

A few key points to keep in mind when attending an auction:

  • You will not be allowed to bid at an auction for residential or rural property unless you provide the agent with your name and address and show proof of your identity;
  • If you are bidding jointly with another person only one of you need to register;
  • If you are bidding for another person you will need to show the agent a letter of authority authorising you to bid on their behalf;
  • It is illegal to make dummy bids at auction and carries a maximum fine of $55,000;
  • The vendor is entitled to have one bid made on their behalf by the auctioneer, however the auctioneer must announce the bid as a vendor bid;
  • It is also an offence to collude with another person to interfere with free and open competition at an auction, and carries a maximum fine of $55,000;
  • The auctioneer may refuse a bid that is not in the interests of the vendor;
  • The auctioneer is unable to accept a bid after the fall of the hammer;
  • If there is a dispute regarding a bid, the auctioneer makes the final decision.