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Buying at Auction - 13 step checklist

Arrange home loan finance before the auction, so you know how much you can afford to bid (or your limit).

Buying at Auction - 13 step checklist

24 January 2024

Buying a house at auction

Thinking of buying a property at auction? Find out about the home auction process, and how you could best prepare for it.

Property auctions are a common way of buying property, but if you want to be the successful bidder at the fall of the hammer, it’s best to go into an auction with as much knowledge of how it works as possible. Understanding the process and taking the right steps will help you feel good about the experience and could see you secure your dream home.

Get the rundown with this auction guide, which includes answers to some common auction questions, and a handy pre-auction checklist you can also download.

First, let’s discuss some common questions about property auctions, that pop up all the time for first home buyers and anyone not familiar with auction rules and procedures. 

buying a property at auction

How do property auctions work?

A property auction is a public event where people bid against one another to buy a property, with the highest bidder being the winner. The winning bidder will normally pay a deposit and exchange contracts with the seller on the day of the auction.

The auction itself may not take long to complete, but in many cases the property will have been on the market for around a month leading up to auction day. So, if you are thinking of bidding, you may wish to use that time researching and preparing beforehand. This time will allow you to work out your maximum bid and do some due diligence on the property. You can also make sure you’re clear about the rules and obligations before the start of the auction.

Remember, the auctioneer (and seller or vendor) is trying to sell the property at the highest possible price, while the bidder (you) is trying to outbid other potential buyers and make the winning bid at the lowest possible price.

For buyers, being prepared could give you confidence at the auction, whether your bid wins or not.

What are the risks of buying at auction?

There are three main risks when buying property at auction, that can lead to ‘buyer’s remorse’:

1.  No cooling off period

Auctions are different from a private sale. With a private sale (also known as a ‘private treaty’), the seller sets a price and there’s no specific time limit to sell. Auctions are rapid, and can happen over just a few minutes on a specific day. At the fall of the hammer at a successful auction, the property is sold there and then.

Emotions could run high if two or more bidders are competing for the property. The excitement of the moment and ‘really wanting the house’ could lead to a purchaser to bid more than initially planned.

So just be aware there’s no ‘cooling off period’ at auctions, contracts are exchanged and the deposit (usually 10%) is paid on the day.  There’s no backing out if you’re a successful bidder (if you do, you’re likely to lose your 10% deposit, and face other costs).

2.  Home loan finance not fully approved

Most people will have pre-approval from their lender for amount they can borrow. To be fully approved, that loan will be subject to the property’s sale price being in line with the lender’s valuation.

 The risk here is that buying at auction for well above the lender’s valuation, might mean the lender withdraws final loan approval. That could leave the buyer needing to find further finance. So, if your home loan is pre-approved, stick to what you know you can afford and been approved for.

Obtain pre-approval from your lender

3.  Skipping due diligence steps

This is a case of buyer beware. If someone skips a building or pest inspection, they might end up buying a property needing expensive work they hadn’t budgeted for, and which if left undone, affects the value of the property.

Similarly, it’s a good idea to get legal advice on the sale and purchase contract before you sign it. If there are clauses you’re not happy with, it’s too late to challenge them after the auction. 

Go through the pre-auction checklist methodically, do your homework with enough time before the auction, and question anything you’re not clear about.

Can you put in an offer before auction?

Yes, you can. Pre-auction offers are not uncommon, it may be best to put your offer in writing to the selling agent, (or vendor) giving the vendor a time limit to respond. In case it’s accepted, have your deposit ready (and finances sorted).

Do your due diligence on the property beforehand (valuation, building inspections, legal advice on contracts etc).  Be mindful that making a pre-auction offer may trigger other potential buyers to do the same if they become aware of your pre-auction offer.

How long is settlement after auction?

 ‘Standard’ post-auction settlement periods post auction are between 30 and 90 days (often 6 weeks in NSW). However, there’s no obligation for the vendor to settle in that timeframe. Check in the Contract of Sale document and if you need to, see if it’s possible to negotiate an alternate timeframe before the auction. You can find our more in our article specifically about settling on a home.

Other hints and tips

You may have seen these before, but they’re useful reminders:

  • Attend some auctions beforehand to get a feel for what happens on the day.
  • Research other similar properties and auctions in the area you’re looking at to get a feeling for the property’s value.
  • Factor-in to your budget other costs like stamp duty, legal fees and building insurance.
  • Have pre-approved finance (and a deposit ready).
  • Conduct pest and building inspections before the auction so you can factor in any additional costs.
  • Be very clear on the rules and terms of the auction. Ask if you’re not sure.
  • Read the Contract of Sale and Vendor’s Statement carefully – before the auction. Again, ask questions if you need to.
  • Prepare your bidding strategy (see our separate article on making an offer).
  • If you don’t think you’ll be great at the bidding process at auction, have someone else bid for you.
  • Set your maximum bid and don’t go beyond it.

Auction terminology

Bidder’s guide – Provided by the auctioneers, the bidder’s guide outlines the rules and regulations of the auction, what you need to do beforehand, paperwork, and any relevant privacy laws. You need this well before the auction, so you are clear about the process and expectations and have time to ask questions before auction day.
Inspection – This doesn’t relate to any pest or building inspections which you should’ve done independently already. It’s about the last chance to take a good look at the property prior to the auction. It’s also the final opportunity to look at the documents relating to the auction – including the settlement terms. If your bid wins, you’ll be bound by those terms.

Vendor & dummy bids – A vendor (seller) bid is when the auctioneer makes a bid on the seller’s behalf – to help the property reach its reserve price. Any arrangements for a vendor bid need to be set out in the rules of the auction, and clearly announced by the auctioneer at the beginning of the auction and when it is made.

A dummy bid is a fake bid made by someone who’s not a real buyer, usually to artificially raise the sale price. It’s completely illegal, with serious penalties for any vendor, dummy bidder or agent responsible.

Rises or advances – Refers to the amount that bids need to increase by in an auction. While the auctioneer will normally define that amount, as a bidder you don’t have to stick to it. However, an auctioneer might not accept a bid if they feel it hasn’t risen (or advanced) by enough.

Reserve price – Is the lowest price the vendor is prepared to sell at. If a property doesn’t meet reserve, the vendor can negotiate with the highest bidder at that point. Once past the reserve, a winning bid is binding – so if you’re bidding past reserve, be ready to buy.
Vendor instructions – If the bidding stops (usually close to the reserve price), the auctioneer might stop the auction and say they are seeking advice or instructions from the seller. They’ll be asking the seller if they’re happy to sell at the highest bid. If the seller agrees, the bidding will recommence with the property going to the highest bidder. Or if the seller isn’t willing to accept the highest bid under the reserve price, the auction will end.

On the market – Once the property reaches the reserve price it’s on the market. The auctioneer will usually say “this property is now on the market” in the auction, meaning the highest bidder will be the successful purchaser.

Passed in – When the bids don’t meet the reserve price and the vendor doesn’t agree to sell to the highest bid, the property might be ‘passed in’ or ‘withdrawn from auction’. When this happens, the highest current bidder gets first opportunity to negotiate a price with the seller. If a price can’t be agreed, the agent might ask another bidder to negotiate. If the seller can’t agree a price with any buyer and they choose to leave it on the market, they could offer it for private sale. 

Home auction checklist

A quick guide on how to bid at auction.
You can also download a PDF version of this checklist as a handy reference.

Step 1 

Loan pre-approval and budget

Consider arranging home loan finance before the auction, so you know how much you can afford to bid (or your limit).
Remember to budget for extras like stamp duty, legal fees and insurance.

Step 2

Start house hunting

Contact local real estate agents and start looking for a property.  You may wish to add yourself to their database for email alerts for upcoming property auctions that meet your criteria and are in your price range.

Don’t be afraid to consider areas that mightn’t be your first choice. You never know what could come up!

Step 3

Get some auction action

Attend various open homes and auctions - even if you are not interested in the property, it will help you get a feel for how the process works.
You may wish to pick up a copy of the bidder’s guides while you’re there, to give you more of an idea about expectations.

Step 4 

Get your Contract of Sale

If you are interested in a property, ask the real estate agent for a copy of the Contract of Sale.  This contract outlines all the details of the sale including names, addresses, timings as well as what is and isn’t included in the sale.

Step 5

Check contract and inspections

You may wish to Instruct a solicitor to check the contract for you. Also consider building and pest inspection reports.

Ask about anything you’re not completely clear about. There might also be elements in the contract you want to negotiate with the seller, e.g. length of settlement period.

Step 6

Set your maximum auction bid

Decide how much you are prepared to spend on the property. What is your maximum bid? On auction day, this can help stop you getting carried away and bidding more than the property is worth, or more than you can afford.

Factor in other costs like stamp duty, insurances and solicitor’s fees to your budget.

Step 7 

Have deposit funds ready

Before auction day make sure you have funds available to pay the deposit, should your bid be successful. The deposit is usually 10% of the purchase price. A cheque or deposit bond are common methods of payment (but you will need to check whether the vendor will accept a deposit bond).

Step 8

Register to bid

Become a registered bidder at the auction by contacting the agent prior to auction, or as you arrive at the auction. If you prefer, you can authorise someone else to bid and sign on your behalf.

Step 9

Good luck

If the property is right for you, make the winning bid! Just make sure it’s not higher than the maximum you’ve already set yourself.

Step 10

Deposit and contract

Pay the deposit and sign the contract. Congratulations – you’ve secured the property.

Step 11 

Contact your lender

Advise your lender of the property details. Your lender will usually want to conduct a valuation of the property before finalising your finance. 

Step 12 

Get ready during settlement period

Wait for your lender to advise you of settlement. Now’s may be a good time to arrange matters such as insurance for your property and to start planning for your move – removalists, change of address cards, etc.

Also check that your automatic payments are set up for your home loan, giving you one less thing to think about each month.

Step 13

Time to move in

Congratulations on your new home - time to arrange the furniture!

Download pdf version of this checklist.

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