An auction explainer for buyers
Our recent blog looked at the first steps a buyer has to take to make an offer on a home sold by a ‘private treaty’. Things are quite different if you want to buy a home that is up for auction. Let’s answer some basic questions.
1. What is the ‘reserve price’ and who decides what that is?
The reserve is the price at which the seller is prepared to sell. In Queensland, it is a legal requirement that a reserve price is set.
The seller will probably have an idea of what they want for the property when they first make the decision to sell. However, the reserve is typically set just prior to the auction and should reflect the feedback that has come in from the advertising campaign. For example, there may have been unexpectedly high rates of inspections, with many people indicating they are going to bid. A good agent will always ask those who have inspected what value they would put on the property. In this way, the inspection rate and comments from potential buyers will be used to inform the reserve.
2. Is the reserve price announced to the bidders?
Definitely not. The only people privy to the reserve are the seller, the auctioneer and the agent. This is to protect the interests of the seller and to ensure the bidders put their best price forward.
Sometimes the reserve is changed during the course of an auction in response to the bidding. If there are very few bids, the seller can instruct the auctioneer to lower the reserve. They don’t have to though. If the seller is not happy with the bids, they are under no obligation whatsoever to sell their property.
3. If my bid is the highest one put forward, how will I know if I have reached the reserve?
When the auctioneer announces that ‘the property is now on the market’, the reserve has been reached.
The highest bid after this point will secure the property.
Once this statement has been made, the seller is compelled to complete the auction – they can’t change their mind. This protects the interests of the buyers.
It is often at this point in the auction where new bidders join in, having played their cards close to their chest up until crunch time. There is no real benefit to this strategy. All bids are treated equally, the only difference is the amount put forward.
4. Does a buyer have to be physically present at the auction?
No, buyers can participate in a range of ways:
• As a phone bidder. The staff of the agency will pass on the bids of the phone bidder as directed.
• Electronically – through platforms such as zoom.
• Proxy bidding – a person representing the buyer is physically present at the auction and places the bids on behalf of the buyer.
If you cannot attend the auction but want to bid, you must let the agent know in advance, you can’t just decide to do so on the spur of the moment. This is because special forms, including ID verification, must be completed prior to the auction and approved by the auctioneer.
Auctions are often exciting and fun. So try to attend if you can.
5. What are the advantages of buying a house at auction for the buyer?
The main advantage is that as a buyer you know what offers you are competing against as the process is transparent. Unlike the private treaty process when really you put an offer forward and hope for the best not knowing the terms and conditions of competing offers.
As stated, all bidders are treated equally. It is a level playing field as there can be no special conditions for one bidder and not others. On that note of conditions, the standard auction terms are a deposit of 10% of the purchase price payable with 24 hours of the auction and a 30 day settlement period. However, as a buyer, it is possible to request that these terms be altered. Perhaps you can only afford a 10% deposit? Maybe you need 60 days to settle? Discuss this with the agent ahead of auction day, don’t leave it until the day of the auction. If the seller agrees, then those amended conditions are offered to all bidders, because everyone is treated equally.
Auctions are tightly regulated by the Qld Office of Fair Trading. Auctioneers have special training for that role. Not just in how to conduct an entertaining auction, but in the legalities of the whole process as they are deemed to be accountable for what goes on at an auction.
Auctions are growing more popular in Queensland as a growing number of sellers and buyers understand that they are a powerful and transparent way to secure that contract.
