Because there is no cooling off period, it’s really important to be certain about a property before you bid at auction. Here’s what you need to know.
Bidding on a property at auction is always nerve-wracking, even for more seasoned property buyers. When you’re a first-time bidder the process can seem overwhelming, however, it doesn’t have to be if you know what to expect.
Buying at auction versus private treaty
When you buy through private treaty (or private sale) in NSW you make an offer to the property’s owner through their real estate agent. Then, you and the seller negotiate with the agent until you have agreed on a price. A contract of sale is agreed to and signed by both parties (this is known as exchanging contracts) and you pay the deposit (usually 10%). There is a 5-day ‘cooling off’ period in which you can change your mind, but this can be waived by signing a 66w certificate.
In NSW, all interested buyers will register for the auction on the day then bid against each other publicly until the property reaches the seller’s reserve price and is declared ‘on the market’. The auction continues until it is sold for the highest bid. The highest bidder signs the contract for sale and pays the deposit directly after the auction. If you are unable to go through with the purchase, you lose your deposit and may even be liable for damages to the vendor.
Preparing before attending an auction
As there is no cooling off period, it’s really important to be certain about a property before you bid at auction. Make sure you have thoroughly researched what similar properties have recently sold for and done your homework on the property itself through inspections.
It’s a good idea to go to several auctions first to gain experience of the process and confidence to bid. You must have a written mortgage pre-approval and your deposit ready – usually ten per cent of the purchase price.
The auction process and how it works
On the day you register to bid with the vendor’s agent – so be sure to take formal identification, such as your driver’s license – and are given a bidder’s number. The auctioneer runs the auction, taking bids from prospective registered buyers and calls out the current bid price.
Prior to the auction, the property’s seller nominates what’s known as a ‘reserve price’. This price is not advertised but is the minimum they are willing to sell for. If bidding continues past the reserve price, the property sells to the highest bidder at the drop of the hammer. If the highest bid is less than the reserve price, the property is ‘passed in’. When this happens, the seller, via their agent, will try and negotiate a sale price with the interested parties. Otherwise, the property goes back on the market.
Tips for bidding at auction
- Know your limit – it’s easy to get carried away with the excitement of an auction. Set a maximum budget beforehand and stop when you’ve reached it.
- Scope out the crowd – arrive early, get a good spot in the crowd and work out how many registered bidders there are. If it’s a lot sometimes a strong early bid can knock out a lot of the competition quickly.
- Control the pace – bidding in odd numbers is one way to do this. For example, instead of opening with a bid of $700,000, bid $695,000. Bidding is then more likely to continue in increments of $5,000 than $10,000. Setting your upper limit just slightly above a round number (say $753,000 instead of $750,000) can help too, as most people settle on a round figure for their cut-off.
- Pay attention to body language – observe other bidders. Tense conversations between couples, phone calls or hesitating before bidding can all be clues that your competition is reaching their limit.
- Have someone else bid for you – if you’re unsure how you’ll perform in the heat of an auction you can always have someone experienced – a close friend, family member or paid buyers agent – bid on your behalf.
- Don’t feel pressured – auctioneers are trying to achieve the best price for the seller, so try to keep your nerves at bay and don’t fall for pressure tactics.
Paying a fair market price
The most important thing is to bid from a place of due diligence, rather than emotion. Even if it’s your ‘dream home’ you need to be willing to walk away if the price exceeds your budget. More importantly, as part of your home loan approval your lender will obtain a valuation on the property you buy, so don’t bid more than it’s really worth.
Any advice given is of a general nature only and does not take into consideration your personal circumstances. Please consider the appropriateness of the advice before acting.