Selling by Auction - what to expect on the day
Selling by Auction – what to expect on the day
We’ve all seen the drama of an auction on TV – the auctioneer with their quick fire speech, waving hands and pointing fingers. But what actually happens in the lead up to the auction and on the day. Understanding this process and the key auction terms is critical if you are selling your property at auction.
Before auction day
The very nature of an auction means that they can happen very fast so it is important that you talk to your agent ask any questions you may have about the process, about setting your reserve price and whether you will be making a vendors bid on the day. Your agent legally must know if you plan on placing a vendor bid so make sure you discuss this.
On auction day
Prospective buyers are encouraged to view the property one last time before they bid. This means you should ensure your property is looking spotless and well-presented – especially if you’ve chosen to host the auction at your property rather than an office or conference room.
Your agent needs to clearly display documentation of the property at least 30 minutes before the auction. It is a requirement by law to have this information easily viewable for all interested parties.
In most states, all interested buyers are required to register before the auction commences in order to receive a bidder’s number. This list is confidential and you will not be able to see it even after the auction.
The auctioneer’s job & rules of auction
Essentially the role of the auctioneer is to control a public negotiation process where potential buyers are competing to buy a property.
The auctioneer has to make sure the process takes place in an orderly and legal manner and while there is often an element of showmanship in the role, with humourous asides and jokes, the auctioneer must always conduct him or herself professionally.
Before the auction commences they will need to announce terms and conditions in accordance with state law and any rules that surround your auction in particular.
They will encourage bidders to go higher but at the end of the day, each bidder decides how much they are prepared to pay and the seller decides whether they’re prepared to sell at that price.
All bids must be acknowledged and recorded, often by assistants so there are no misunderstandings over who has bought the property and for how much. And no bids can be accepted after the hammer falls or by an unregistered bidder.
A good auctioneer can read body language and create an atmosphere of fun and entertainment to take the pressure off a very serious process.
They know how to prevent disputes and how to handle any problems that can occasionally occur.
Legislation differs in all states and territories in relation to buying at auction so if you have any queries check with your agent and/or legal professional.
Opening bids & bidding
After the auctioneer has run through the property being auctioned, detailed the features and an overview of the what is included with the property one last time they will invite the audience to an opening bid – or in other words for someone to place a bid on the property. Other interested buyers will then bid on the property in increments until either the property is sold or it is passed in (not sold).
A vendor’s bid is used to encourage bidding from buyers. This is placed by the auctioneer or another legally permitted person on the vendor’s behalf to assist the property reaching its reserve price.
The amount of the bid needs to be below the reserve price; otherwise it could push the bid much higher. As mentioned earlier if a vendor bid is going to be made then it needs to be declared before the auction actually begins.
A dummy bid on the other hand is a false bid made by a non-genuine buyer. All dummy bids are illegal and attract significant penalties for the vendor (up to $20,000 in SA and up to $55,000 in NSW), the dummy bidder and in some cases the agent if it can be proved they solicited the bid.
Rises and Advances
This is the amount by which bids increase during an auction and is usually dictated by the auctioneer. They could be $500 or $5000, and do not necessarily have to be adhered to – but the auctioneer can reject your bid if they think you have not advanced the bidding by enough.
One of the most crucial terms, the reserve is effectively the point at which the auction becomes “live”. If bidding does not go over the reserve then a negotiation by the highest bidder and seller may take place. This may continue for hours or days but usually a contract on the property is executed reasonably soon after the auction itself. However, once bidding goes over a reserve price the property is on the market and a winning bid is binding, so make sure you don’t overextend your budget or get carried away in the heat of the moment.
On the Market and Passed In
During the course of the auction, the auctioneer may stop the proceedings and say they are seeking advice or instruction from the vendor. This gives the auctioneer time to discuss the progress of bidding with the you, the seller.
If the bidding has reached the reserve price, or is close, the auctioneer will ask you if you are willing to adjust your reserve and sell the property for the highest price. If you are, the auctioneer will announce to the crowd that the property is on the market or in other words, that it will be sold to the highest bidder.
If the bidding does not reach the reserve price or a price the seller is happy with, the property may be passed in. In this case the highest bidder may be given the first opportunity to negotiate a sale with the seller however this is not legislation in most states.
When you list your property for sale by auction, you still have the ability to accept pre-auction offers before the auction day deadline. All pre-auction offers need to be submitted in writing to your agent who in turn will present it to you for consideration.
However, in order for this to be rewarding, the offer needs to be solid and stand out to catch your attention. Otherwise, you could allow your property to go to auction and see what the market will give you for your home.
Selling at Auction – Some Extra Things to Consider
When you sell at auction there is normally no cooling off period – the contracts are signed and the deposit is paid on the day.
A 10% deposit is normally paid by the buyer/s with the balance due on the agreed settlement date.
The deposit is held on your behalf in the agency’s trust account for an investment account.
Prior to settlement the property remains your responsibility, so it is important to ensure you maintain your home insurance during this period.
Once the contract is signed the process of transfer can begin. You may use the services of a solicitor or conveyancing company to handle transfer on your behalf.
As part of the transfer process, arrangements will be made for the balance of the purchase price to be paid as directed by you to your bank account, or to any party or account you nominate.
Settlement day is the date when the balance of monies owning less costs are paid, keys are handed over and the property then becomes the responsibility of the purchaser.
What Every Seller should do on Auction Day
On site auctions require preparation by the seller as there is likely to be a lot of people in your home for one last inspection, so be sure your home is still looking its best. You may pick up a buyer at the last minute and you certainly don’t want to deter buyers that are there to bid.
Inform your neighbours of the auction day and time, ask that they do you a favour and keep noise to a minimum or go one further and invite them to the auction.
Set up a suitable area to hold the auction. Usually, it is held in the garden or on the front footpath, however, your agent and auctioneer will be able to guide you. Make sure you agree with your agent whether they want you to be present at the auction or to hideaway. The auctioneer and/or agent may feel it is better that you are not present at the auction, as in your excitement you may telegraph your position to buyers and therefore affect further bids.
Good luck and happy bidding!