Selling by auction is a popular way to sell residential property in New South Wales. On average, 38 percent of home sales in Sydney alone are by auction.
Selling property at auction is a good idea when the housing market is tight and buyers are competitive.
Well-informed buyers can quickly close a deal on a property at auction, avoiding a lengthy negotiation and conveyancing process common to private sales.
There are different procedures of sale by auction in each state or territory. Buyers who plan to purchase at auction in another state should be familiar with the rules of that state.
Important Facts About Auctions in NSW
Auctions allow multiple buyers to bid publicly on a property for sale.
In New South Wales, auctions are often held by estate agents who have authorisation to assume the role of an auctioneer.
There are several differences in rules and procedures between buying at auction and buying a house on the market. Buyers must be aware of their obligations and responsibilities when purchasing a property by auction.
Most importantly, the highest bidder is obligated to follow through with the purchase after the hammer falls.
There is no cooling-off period and no time to negotiate terms of a contract, unlike a normal private sale.
If you are the highest bidder, you must pay a deposit and exchange contracts immediately. Failure to do so may result in penalties, loss of deposit or payment of damages to the vendor.
Registering as a Bidder
Bidders must register with the selling agent and this will give you the right to bid on the day.
It does not mean that you must bid. To register, proof of identity that shows both your name and address must be presented. Examples include a driver’s license, council rates notice or vehicle registration.
If you do not have this type of documentation, two alternative sources may be used. One must show your name, and the other must show your address.
Acceptable combinations include a passport, ATM card, credit card or birth certificate along with a utilities bill, rental agreement or any official document that shows your address. If bidders pre-register, this documentation must be presented on the day of the auction.
After registering, bidders will be given a unique number. The number and the registration details provided by the bidder will be recorded in a Bidder’s Record.
This record is kept by the selling agent for three years after the auction. The contents of the record cannot be disclosed to the seller, only to an authorised representative of NSW Fair Trading, a consumer rights arm of the Department of Finance, Services and Innovation.
How to Prepare for the Auction
Because there is no cooling-off period, bidders are urged to inform themselves about the property before auction day.
Research the surrounding suburbs
Become familiar with the value of other properties in the area. Examine recent sales data to know how much houses are selling for in that neighbourhood or subdivision.
Attend other auctions to see how bidding is done and what the final sales prices are.
Visit the House and Get The Inspections Done
Look at the exterior, the garden, outbuildings and general condition. Have a building and pest inspection done by a certified inspector to identify defects or problems with the property.
If the property has a swimming pool, include a pool inspection.
An inspection will not only identify problems. It will provide recommendations and cost estimates for repair. For community properties or properties on strata title, make sure you review the strata reports.
Always Examine the Sales Contract
If you have any questions or feel that the contract is unfair, have your solicitor review it. You can negotiate changes to the contract with the seller’s agent before the auction.
This amended contract should be presented to the auctioneer at the time of the auction. The bidder must inform the auctioneer that bidding is according to the terms of the amended contract.
Obtain Financing in Advance
Know how much you can afford and get funding in place before the auction begins.
The highest bidder must pay a deposit, usually 10 percent, after the auction. Ensure that enough money is on hand to pay the deposit.
Even if financing is not in place, the winning bidder is expected to sign the contract and complete the sale.
What Happens On Auction Day?
A property often is open for inspection on the day of the auction and before the event begins.
Reinspect the property, review the contract and make sure that you understand the rules of the auction. The auctioneer or agent must provide each bidder with a unique number, a copy of the Bidder’s Guide and a list of conditions governing the auction.
An owner may set a reserve price, or the minimum amount the owner will accept for a sale.
The reserve price is not disclosed to bidders. The auctioneer may bid once for the seller. Called a vendor bid, the agent must announce when a vendor bid is being made. Dummy bids are not allowed.
If the reserve price is not reached, the agent can ask if the owner would sell at a lower price. If the seller chooses not to accept a lower price, the property is withdrawn from the auction, or passed in.
Bidders have no obligation to buy if the reserve price is not reached. However, the highest bidder may be invited to negotiate a sale with the seller.
If a property is passed in and contracts are exchanged on the same day as the auction, a cooling-off period is still not allowed.
If the reserve price is reached, bidding continues until the fall of the hammer.
No bids are accepted after the hammer. The highest bidder becomes the buyer. Auctioneers can refuse bids that are not in the seller’s best interest.
After contracts are exchanged, your conveyancer will conduct searches about the property. At settlement, the remainder of the purchase price will be paid to the seller.
Pre-Auction Sales
Pre-auction offers are allowed in New South Wales. A buyer may submit an offer to the seller’s agent before the date of the auction. The selling process is the same as that of a private sale.
