Auction Resources

What is an auction?

An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. (Wikipedia)

The word "auction" derives from a Latin word meaning "to increase, particularly in relation to a sale". So a real estate auction should be all about increasing the price offered for a property - great news for sellers!

Auctions have been used to sell various goods and services - including people - since ancient times. One of the first recorded auctions was in the city of Babylon in 500BC when women were auctioned for marriage!

Benefits of selling by auction

The following list of benefits of selling by auction is not exhaustive but does demonstrate some of the reasons to consider using an auction marketing campaign when selling your valuable property:-

Auction Hammer

1. No limit to the price that may be achieved. As long as buyers are willing to increase their bids, the price for an auction property will keep going up.

2. "Cash-unconditional" terms beneficial to seller. Standard terms for an auction sale of real property includes the following:-

o No finance clause (cash contract).

o No buyer inspection clause (no building, pest or pool inspections). A buyer can request these prior to the auction but at the auction itself the buyer will be bidding on unconditional terms.

o No cooling-off period for auction sales. The only time in Queensland that a cooling-off period of five business days does not apply to the sale of a residential property is when the property is sold at auction.

o Substantial deposit taken immediately. A deposit of 10% (sometimes 5% or any other sum specified by the seller) is due immediately the property sells at auction. 

3. No price to discourage potential purchasers. As an auction property is marketed without a price, buyers are less likely to dismiss a property because they think the price is too high or too low.

4. Seller receives price feedback from the market before setting the price. Many properties initially enter the market at the wrong price - usually overpriced. This can result in frustration for a seller and lack of a sale. With an auction, the seller receives the benefit of approximately four weeks (may be longer or shorter) of marketing, with regular price feedback from their agent, before setting their reserve price for the auction. Receiving price opinions from a range of buyers (conveyed to the seller by the agent) will help a seller set a price that is in line with market expectations, greatly increasing the prospect of a sale within a reasonable time frame.

5. Competition between buyers may result in a premium price for the seller. There is nothing like competition between two or more buyers to push a price higher. Which is good news for sellers!

6. Auction deadline encourages procrastinating buyers to act. Lets be honest - everyone works better when they are faced with a deadline. The auction date acts as a deadline and will motivate buyers to act quickly to secure the property of their choice.

7. Seller sets the terms. The seller of an auction property can specify the terms they require on the contract that is displayed prior to the auction. If the seller wants a longer settlement, for instance, they can have their preferred date placed on the contract prior to the auction.

Benefits of buying at auction

Just as there are benefits to a seller who chooses to market their property by auction, astute buyers also may benefit by the process. These are some of the benefits to a buyer who chooses to buy at auction:-

1. May encounter less competition for the property. If a buyer is in a position to purchase at auction, they may actually find they have less competition than if they seek to purchase a priced property. This is because some buyers are not in a position to buy under the cash-unconditional terms of an auction.

2. Competition at an auction is transparent. With an auction, offers and negotiation are public - out in the open. With a private treaty sale (sale by price), if two or more buyers want the same property at the same time, it is standard practice that one buyer will not be aware of the offer being made by another buyer. This means all competing buyers are "shooting in the dark". The agent will advise the buyer there is another offer, or offers, ask them to submit their best offer, and then have the buyer sign a "Multiple Offer Form", in which the buyer acknowledges having been made aware he or she is competing against other offers. The buyer does not know until receiving a phone call from the agent whether their offer was successful. At auction,all offers are made publicly (in the form of bids) and a buyer can choose to increase their offer only as much as they want to above the last highest offer. The buyer is free to withdraw from the bidding any time they feel the price has gone beyond the figure they are prepared to pay.

More Tips for Buyers

* When buying at auction, preparation is the key. Do your research. Get a feel for prevailing market values by visiting open homes, call agents to find what similar properties sold for, look on the internet etc. The more research you do, the better you will be able to judge what is fair value for an auction property that interests you.

* If you require a building and pest inspection, do it before the auction. You cannot have such inspections done once you have bought at an auction. Understand that when you outlay money for inspections, there is no guarantee you will be the successful bidder on the day.

* Have your finance organised. If you need to borrow money to complete the purchase, make sure your lender knows you intend to buy at an auction and you have unconditional approval for a loan if you are the successful bidder. The lender may want to do a valuation of the property as part of approving your finance application.

* Make sure you are familiar with the contract and the auction terms and conditions before auction day. The agent will provide you with a copy of the contract if requested. Have your solicitor check it if you have any doubt at all about what the contract states.

* Set your price limit before the auction starts. Anyone who ever bought anything at an auction knows how easy it is to get carried away and pay more than you had intended to. There is an easy way to prevent this from happening. Know your top price before the auction starts then walk away if the bidding exceeds that figure. There will always be another property. There is no point in placing yourself under financial pressure just because you got caught up in the competitive atmosphere of an auction. When the price no longer makes financial sense to you, stop bidding!