How do property auctions work?
A property auction usually means buyers can see all the other offers people are putting in on the property, potentially avoiding paying over the odds.
- A winning bid at auction above the reserve price means entering into an unconditional sale with the buyer.
- The reserve price is set by the seller and doesn't necessarily have to be public, but once bidding reaches the reserve price the property must be sold.
- The major advantages of buying at auction are knowing the other bids and the quicker process.
- Buyers should also make sure they have a firm limit so they don't bid over the odds.
Auctions are a popular way to sell property in Australia, much more so than in other countries like the US. But how do auctions work and are buyers better off than going through private treaty?
How does a property auction work?
A property auction basically works like any other auction, with an auctioneer and several interested buyers.
Unlike selling via private treaty, an auction has a marketing deadline, often three-four weeks during which the selling agent promotes the property to try and attract as many buyers as possible before the big day. The seller sets a reserve price which is kept confidential from the buyers. Once bidding hits the reserve price the property becomes 'on the market' and must be sold, although bidding might end up higher. The auctioneer may or may not let the bidders know when the reserve price is reached (in Victoria the auctioneer has to ask the seller first during the auction if they will sell at the highest bid before it can go on the market).
Providing the reserve price is reached, the winning bidder immediately signs a contract of sale with the buyer. There is typically no cooling off period after a sale at auction, and significant penalties can apply if a successful bidder tries to renege on the deal. That might include the bidder being liable to the cost of re-auctioning the property, or having to pay the shortfall between their offer and the winning bid at the next auction.
If bidding doesn't hit the reserve price, registered bidders may be able to negotiate with the seller after the auction.
What's in it for sellers?
Selling at auction can be a faster process than listing a property and waiting for offers. After the sale concludes, the contract is also unconditional right away, with no cooling off period, so the entire process can be less drawn out.
Auction rules
The following rules generally apply to any property auction in Australia regardless of which state or territory:
All auction sales are unconditional (meaning there's no cooling-off period)
'Dummy bids' (fake bids in an attempt to try raise the bidding) above the reserve price are illegal and attract penalties
The property is up for sale once bidding surpasses the reserve price
The highest bidders have the first chance to negotiate a sale if the property is passed in
The contract must be signed and deposit paid immediately after the auction
Vendor bids must be announced to the buyers
- Underquoting (advertising a price significantly below the actual expected selling point to attract buyers) is usually considered 'misleading or deceptive conduct' under Australian consumer law and not allowed. Victoria and New South Wales have introduced laws specifically to combat underquoting properties.
Auction rules by state
| Can the seller/agent give a price guide? | Vendor bids... | If reserve price isn't reached... | |
|---|---|---|---|
| NSW | Yes | Are allowed, but the auctioneer may only make one bid on behalf of the seller. | The property is passed in and there's no obligation on the vendor to sell. However, if a deal is agreed upon the same day as the auction, there is still no cooling off period. |
| VIC | Yes | Are allowed provided the auctioneer tells bidders at the start of the auction. | The highest bidder gets first right to negotiate a price. If they cannot agree, other bidders can be approached. If a deal can't be reached, the property can be offered for private sale or relisted for auction. |
| QLD | No | Are allowed | The highest bidder can negotiate with the seller after the auction. If a deal is reached within two days of the auction, there's no cooling off period. |
| WA | Yes | Are allowed, but the intended number of bids must be shown in the conditions of sale. | The auctioneer or agent can negotiate with bidders. Western Australia has no automatic cooling off period for property purchases. |
| SA | Yes | Sellers can make up to three vendor bids. | Anyone who bid at the auction can enter into a contract of sale on the same day as the auction, with no cooling off period. |
| TAS | Yes | Are allowed. | The auctioneer or agent can negotiate with bidders. Tasmania has no automatic cooling off period for property purchases. |
| ACT | Yes | Are allowed, but the auctioneer may only make one bid on behalf of the seller. | The highest bidder gets first right to negotiate a price. If they cannot agree, other bidders can be approached. If a deal can't be reached before midnight, the property can be offered for private sale or relisted for auction. |
| NT | Yes | Are allowed. | The property is passed in. The highest bidder can negotiate with the seller or agent via private treaty. |
Benefits of buying at auction
Transparency
One of the biggest benefits of buying at auction compared to a private sale is being able to see all the other interested parties.
It can be difficult to trust a selling agent that says there's a lot of interest in a property, as they may just be saying this so you offer more. At an auction, not only do you see how many people are actually bidding on the property, you see how much they are willing to bid. That way you can be more confident that you didn't pay more than you needed to.
Quicker process
Buying at auction can also be a quicker process than going privately.
At private sale you make an offer, then wait to see if the seller accepts that or counters which can be a drawn out process. At auction you know that if you are the highest bidder (provided you're above the reserve price) you can immediately sign a contract of sale with the seller - there isn't even a cooling off period.
"For a buyer, an auction is a very fair and transparent way to buy property. Everything's out in the open, or in real-time virtually for those in lockdown, and you can see exactly what's happening, as it happens.
"It's a great way to gauge the value of a property because you see what everyone else is willing to bid and there's no negotiations or conversations around price happening privately outside of the public arena.
"A property being purchased at auction is also bought unconditionally, so as soon as that hammer falls you know the home is yours and nothing can change from that point. It's quick and simple and removes a lot of the anxiety and confusion around buying property.
"For both buyer and seller, there's no question of what the true market value of the property is and again, the process is completely fair and transparent.
"It's also over and done with in one day, provided the property reaches reserve, which makes it a very efficient way to buy and sell a home."
Drawbacks to buying at auction
May be more competition
During the lead up to an auction the selling agent will likely work hard to make sure there's as many potential buyers bidding as possible. If you find a property you like that isn't getting much attention from buyers, but that's going to auction in a fortnight, it's likely by that time there will be many more interested parties. If you're early to a property that's listed privately, you might be able to negotiate a sale while you're one of only a few possible buyers.
High pressure environment (with no cooling off period)
The other thing to consider before you head to an auction is keeping a cool head under pressure.
When you put in an offer under normal circumstances, you have plenty of time to consider whether you're happy paying the amount that you're offering. At auction, you'll need to make your decision a lot quicker, so if you panic you might end up in a binding contract that you aren't happy with.
Many buyers agents recommend setting a hard limit beforehand on the amount you're willing to pay, and not letting emotion get the better of you if bidding exceeds that amount.
Savings.com.au's two cents
It can seem a little strange to have a property auctioned off like it's a signed Collingwood jersey, but auctions can actually be a great way to remove some of the inefficiencies in property buying. The biggest (from a buyers point of view) is that you actually know what other people are bidding, rather than just relying on what an agent tells you. That can mean there's less chance you pay over the odds.
In other cases though, you might be better off buying through private treaty, particularly if you are one of the first interested parties. If the seller is keen to get the deal done quickly, it might make sense not to wait for an auction and just put an offer on the table to get the ball rolling. Not every property is listed for auction either, so you might be missing out if you're just bidding at auctions. If you do end up bidding privately, doing your market research and consulting professionals to get a decent idea of what the property is worth can help mitigate not knowing what the other bids are.
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