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Buyer
What happens on auction day?
A step-by-step guide to what you can expect on auction day.
It’s easy to get caught up in the excitement of auction day. The booming auctioneer's voice, hands waving in the air, and frenzied bids yelled out from the crowds.
Whether you’re a first home buyer or an investor and you want to place a bid, it’s important to understand what happens on auction day so you're in the game.
What to expect on auction day
Pre-auction inspection
Make sure you’ve been through the property and have asked the real estate agent any questions about the property and the auction day process. The agent will be seeking an indication on whether you intend to bid on the property, so they can keep an eye out for you in the crowd.
Olivia Parsons is the state manager for legal at Conveyancing.com.au. “Auctions waive the cooling-off period, so all your checks and balances need to be completed before auction day,” she says.
If you’re buying at auction, bid smart, do your homework and mitigate the risks, she states. “If you haven’t arranged a building and pest inspection beforehand, then you’re taking on a property of unknown condition. Best case scenario, it isn’t a problem, but the potential risks are significant,” Parsons says.
Legislation differs in each state or territory concerning buying at auction, so it's best to familiarise yourself with the lay of the land in your state.
Finances
An auction can be an exciting way to purchase a property, but it’s crucial you don’t get caught up in any frenzied bidding and spend more than you intended. Make sure you have been to the bank, that you’ve got your finances lined up and that you have a very clear highest price in mind. Don’t go over that price no matter what.
Parsons warns that "bidding over budget is not only dangerous but could be disastrous. If you commit to a sale beyond your pre-approved amount from the bank, there are no guarantees they will increase your loan.”
Also, if the contract isn’t subject to finance and you don’t have the money, you can still be obligated to purchase. “This means at a minimum you’ll pay the deposit amount, but you could also be liable for any loss the seller experiences on resale of the property,” Parsons adds.
Be sure to set your limit of what you want to spend and stick to it. Image: Matt Harvey
Vendor expectations
The homeowner is usually present on auction day, adds the chief operating officer of agent comparison site, Agent Select, Karim Belcaid. “The seller will want to see the momentum (or lack of) in the auction process to help guide the next move. Clearly set the expected reserve price with the agent on the morning of the auction.”
This should be realistic based on the level of interest in the lead-up to the auction day. “Ask the agent what the plan is if there’s no bids or if the reserve hasn’t been met," says Belcaid. "Be clear and firm with your agent well before the auction to avoid any panic decisions in the heat of the moment.”
Under the hammer
Before the bidding commences, the auctioneer usually reads out sale terms and conditions, along with any rules for this particular auction. The auctioneer ensures that the bidding is conducted in an orderly and fair way and is under a legal obligation to conduct the process professionally. Queensland's State Manager of Conveyancing.com.au, Martin Hesse, adds that "it is the auctioneer’s job to encourage bidders to purchase the property at the highest price possible, so make sure you stick to your guns. The advantage of an auction is that the process is transparent. You will be aware of other prospective offers and what the market deems to be a fair price at that particular time."
Each bid is acknowledged and recorded, so there are no misunderstandings, with each bid clearly called out during the process. Bids cannot be accepted after the auction has been finalised.
On the market
The reserve price is the minimum acceptable price that the vendors are happy to accept to sell the property for. If the reserve is met, the auctioneer will declare during the auction that the property is now ‘on the market’.
Once the highest bid has been accepted, the auctioneer will lower their hammer or hand, and the property will be declared sold. Once this occurs, no more bids can be accepted.
Tell the agent if you're interested in the property and intend to bid on auction day
Passed in
If the bidding doesn’t reach the vendor’s reserve price, the property is passed in at auction. The estate agent may then negotiate with the highest bidder to negotiate a sale, depending on local legislation in your state.
After the auction
Parsons explains that the successful buyer will sign and exchange the contract and commit to its terms on auction day. You will be expected to pay a deposit for the property. These monies are held on your behalf in the agency’s trust account.
Parsons explains that “on the day of the action, the successful bidder will sign the contract of sale then and there, and be committed to the sale. Without first having the contract reviewed, you’ll be bound to its terms without any leverage for negotiation. You’re also bound to the condition of the property."
If they haven’t done so prior to auction, the buyer may arrange a building and pest inspection of the property to be assured of its condition at this time.
"The road to settlement is usually a six week process, depending on which state you live in, in which time the vendor will complete any conditions or repairs agreed on with the buyer and vacate the property, so you become the legal new owner of the property," Parsons says.
Taking ownership
The process of transferring the property into your ownership will be undertaken by a solicitor or conveyancing company, with the balance of the purchase price to be paid to the vendor by the settlement date.
The estate agent will arrange to meet you at the property to hand over the keys for a final inspection on settlement day. From then, the property is officially yours.
Enjoy the bidding process!
