Auction

Besides the traditional processes of buying or selling a property, another popular method to effect such transaction is to go through the process of Auction.

Auction Process

The auction process under may be classified as follows:

  • The Reserve Price: Prior to commencing an auction, the seller sets a minimum sale price for the property to be auctioned. This minimum sale price is called the ‘reserve price’. The reserve price is not disclosed to the public. The auctioneer cannot sell the property below the reserve price.
  • Auction Conditions: Before the auction starts, the auctioneer will display necessary auction conditions as set by the law of the State of auction. These conditions may include but are not limited to the following:
    • the highest bidder will be the purchaser, subject to any reserve price;
    • prior to the commencement of the auction, the auctioneer must announce that the auctioneer is permitted to make one bid on behalf of the seller;
    • the auctioneer has the right to refuse a bid that is against the interests of the seller;
    • the auctioneer cannot accept a late bid; and
    • the auctioneer will be the sole arbitrator to make final decision in case of a disputed bid.
  • Commencement of the process: The auction process commences with the auctioneer declaring all aspects of the property along with all other relevant details including restrictions on the title and the required amount of deposit. Thereafter, an opening bid, usually below the reserve price, is announced by the auctioneer. The price is gradually raised as the auctioneer accepts more bids. If the bid matches or exceeds the reserve price, the property will be sold to the highest bidder. If the highest bid fails to match or exceed the reserve price, the auctioneer on behalf of the seller will try to sell the property by negotiating either with the highest bidder or with the other bidders who participated in the auction.
  • Sales Contract: The highest bidder is required to complete the sale transaction by officially signing the offer to buy the property. The offer is thereafter signed and accepted by the auctioneer on behalf of the seller. The successful bidder as well as the seller is required to sign and conclude the sale contract. The settlement process for selling a property at an auction is quite similar to the process of selling a property by private treaty. At the time of signing the contract, the successful bidder is required to make a deposit of 10% of the purchase price to the buyer. The remaining balance is paid at the date of settlement as mutually decided by the bidder and the seller. The settlement date is included in the sale contract signed by all the persons involved in the auction.

Buyers and Sellers Consideration in an Auction Process

If you are the buyer, you need to analyse certain aspects before you decide to purchase a property in an auction. Since there is no ‘cooling-off period’ when you buy a property at an auction, you need to:

  • have pre-approved finance prior to the auction date and understand properly the actual worth of the property you propose to buy. You should also have accessibility to deposit funds as you may need to pay a minimum deposit on the auction date in case you turn out to be the successful bidder;
  • conduct pre-purchase searches of the property before the auction date;
  • obtain from a licensed valuer the correct valuation of the property; and
  • choose and select a conveyance before the auction date in the event you are named as the highest bidder at the auction.

As a seller you should be aware of certain issues like:

  • you may not receive a price or a bid that matches or exceeds your reserve price; and
  • you should verify and confirm that the real estate agent holding the auction on your behalf must have or appoint a licensed auctioneer or a consultant auctioneer.

Auction in New South Wales (NSW)

If you are purchasing a property in NSW, you cannot bid at an auction till you give the selling agent your relevant details along with a proof of your identity. The details so given will be entered in the Bidders Record and a bidder’s number will be assigned to you. Registration is required if you are bidding on behalf of a:

  • Person: When you are bidding on behalf of a person, you need to give a letter of authority from him/her along with his/her identity proof; or
  • Company: An authorising letter on the company’s letter head and the Australian Business Number (ABN) should be recorded in the Bidders Record.

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