Guide To Property Auctions In Australia

Residential property auctions are one of the two main ways houses and apartments are bought and sold in Australia. Auctions have their good and bad points for sellers and buyers. Understanding the process from start to finish will help you get as good a deal as possible, especially as a first home buyer.

How do property and house auctions work?

Property auctions have become an indelible feature of the great Aussie homeownership landscape, exemplified by hit TV shows such as The Block and Selling Houses Australia. Auctions can be tense and exciting, with plenty of twists and turns in the bidding, but they are also governed by strict rules and procedures that differentiate them from private sales.

With a private sale, a seller lists their property, either with a real estate agent or via private sale. The property is then open to the public, usually on the weekend, but often, there is one viewing mid-week. Prospective buyers then get their finances and papers in order and make an offer on the property, which the seller accepts or rejects. Eventually, the buyer and seller agree on a price and the sale proceeds.

Types of property auctions

Unlike private sales, auctions are conducted in public and happen either at the property itself, a real estate agent’s office, online, or a combination of all three. Potential buyers get together to place bids controlled by a licensed auctioneer who may also be an estate agent.

» MORE: 10 questions to ask a real estate agent when selling

The auction process

If you’re a first time buyer or seller, you need at least a basic understanding of the auction process. Each State and Territory may have slightly different rules regarding auctions, but they all follow the same basic processes.

Before the auction, the selling agent is required to give all would-be bidders a copy of the Bidders guide, which contains details on how to register and the necessary identification.

To make an offer or bid at an auction, would-be buyers first need to register with the agent selling the property. After this, they are assigned a bidding number. They can hold this number up to place a bid. Or, they can just call out a higher amount than the previous bid at any time. Interested parties will usually register and be given a contract for sale at an inspection before the auction. Still, you can register right up to the start of the auction and even after it starts, as long as you can locate the selling agent and provide the necessary identification.

Before bidding commences, the seller or vendor will nominate a reserve price. This is the minimum amount they are willing to accept for the property. The reserve is not advertised and must remain confidential between the auctioneer and the selling agent. So, bidders are largely in the dark at the start of an auction.

Once the bidding reaches or surpasses the reserve, the auctioneer will announce that the property is ‘on the market’. This means that the highest bid from here on will win the right to purchase the property for the final amount bid. The property is then sold once the auctioneer announces ‘sold’ and the hammer comes down.

If bids don’t reach the reserve, the property will be ‘passed in’. This means that the auction did not achieve the minimum price the vendor was willing to accept. At this point, the selling agent will invite the highest bidder to negotiate the price with the vendor.

» MORE: How does a property valuation work?

Private sales vs auctions

One of the crucial differences between private sales and auctions is that once you, as the highest bidder, are announced as the auction winner, there is no cooling-off period. You are obliged to sign and exchange a contract of sale on the spot and pay the deposit amount. This amount is usually 10% but could be more, so you’ll need to check with the selling agent beforehand. Once the seller and buyer exchange contracts, you could lose your deposit if you pull out of the deal.

🤓 Nerdy Tip

Most bidders, especially first home buyers, will have a pre-approval limit — otherwise known as a ‘hard limit’ — they can bid up to set by their lender. Their bidding stops once the price gets out of their range.

Standard terms and conditions of auctions

Auctions and auctioneers across Australia need to follow a range of standard terms and conditions. There may be slight differences across States and Territories, but these rules include some of the following.

The highest bidder wins the right to buy the property. They are expected to pay the deposit and sign the contract at the conclusion of the auction.
The seller has the right to pass in the property. If the reserve is not reached, the seller is free to negotiate with the highest bidder in this instance.
The auctioneer can make one bid on behalf of the seller but must announce beforehand that they intend to do so.
The auctioneer is not permitted to take a late bid.
The auctioneer is the sole arbiter of disputes that may arise over a bid.
The minimum bid allowed will be at the auctioneer’s discretion.
The auctioneer should be given the successful bidder’s details immediately at the auction’s conclusion.
If nobody bids at the auction, the property is automatically passed in. The selling agent may negotiate with anyone registered who may be interested in making an offer.

» MORE: What is an expression of interest?

Pre-auction offers and financing

Anyone can make an offer on the property right up to the start of the auction, also known as a pre-auction offer. It’s not uncommon for a sale to go ahead in this scenario — especially if the seller is happy with the price and doesn’t want to risk getting less or having the property passed in at auction. In this instance, the price gets negotiated in much the same way as a private sale.

Before you bid at an auction, you should have all of your papers in order. This includes financing from your lender and some mechanism where you can pay the deposit, usually by bank cheque, immediately at the conclusion of the auction. Like a private sale, the deposit is paid at the exchange of contracts. Settlement is at an agreed-upon date in the future, usually between 30 days and six weeks, depending on what’s in the Bidder’s guide.

Once the settlement is concluded, you receive the house keys and start paying off your mortgage. The initial deposit may be less if you buy at auction — only 10%. However, your lender will probably only lend you 80% of the property’s value, ask you to find a guarantor, or subject you to lenders mortgage insurance. At any rate, you should always check with your lender regarding their loan terms and conditions before you bid at auction.

You will also need to engage a solicitor for conveyancing services in the same way you would with a private sale. Still, in this instance, they should look over the contract of sale before you bid to ensure nothing in the contract could disadvantage you.

» MORE: How does home loan pre-approval work?

Property auction glossary

Below is a list of terms frequently used with properties sold at auction.

Absentee bid: When a buyer can’t physically be at an auction, they can put in what is known as an absentee bid. This is usually lodged before the auction starts, like a pre-auction offer.
Bidders guide: A document given to registered bidders before the auction that includes all terms and conditions, including the settlement date.
Bidding: Bidding at auction involves potential buyers either holding up a card or calling out their bid when the property reaches a specific price.
Bidding war: A bidding war at auction occurs when two or more parties consistently bid, which drives the price up. When a bidding war occurs, properties can sell for way more than their reserve.
Clearance rates: The number of properties successfully sold at auction over a certain timeframe, usually a weekend.
Conditions of sale: Several legal requirements or conditions of sale are imposed on an auction. These cover everything from the payment methods of the deposit, the time to settlement, and the reserve price. The conditions of sale are usually included in the property’s advertising and marketing as well as the Bidder’s guide. Still, they may also be read out by the auctioneer before the auction starts.
Fall of the hammer: At some point in the auction, the auctioneer will call for final bids. When all bids are exhausted, the auctioneer will count down to the fall of the hammer, usually by saying, ‘going once, going twice, going three times — sold to bidder.’ Such a process is referred to as the fall of the hammer.
Hammer price: The hammer price is the amount the property is sold for when the hammer comes down. In other words, it’s the final sale price for the property at the auction.
Indicative price: A price range the selling agent tells registered buyers the property should sell for.
Listing: A listing is a property that has been advertised for sale. An auction listing is a property that has been marketed and advertised to be sold at auction at a given time and place.
Passed in: The auctioneer will keep requesting bids if the bids do not reach the reserve price. If there are no more bids, the property is ‘passed in’, after which time the highest bidder can negotiate with the seller to see if they can find an agreeable price.
Pre-approval: Before you can bid at an auction, you need to obtain pre-approval from your lender to bid up to a certain amount. With pre-approval, you at least know exactly what your limit is. Home loan pre-approval also means that your finances are organised and that you can pay the deposit and sign the contracts on the spot after the auction.
Pre-auction offers: A potential buyer may make an offer to the seller before the auction commences. The seller can accept or reject the offer, which may stand as the first bid at the auction in this instance.
Price guide: The amount the selling agent believes the property will sell for.
Reserve: Before the auction begins, the seller will set a reserve price with the auctioneer, the minimum amount they are willing to sell the property for. Once the bidding reaches the reserve, the auctioneer will announce that the property is ‘on the market’.
Tie bids: When the same bid is received simultaneously by two buyers. The auctioneer then needs to resolve this.
Vendor bid: A vendor bid is made on behalf of the person selling the home. The auctioneer needs to declare that they are making a vendor bid, and they can only be placed when the reserve has not been reached.