If you're on the hunt for your ideal home in Australia, you might be considering the prospect of purchasing a property through an auction. While buying a house at an auction may seem like a daunting task, it can be a successful venture with the right knowledge and preparation. In this guide, we will explain how the auction process works in Australia, including the rules for registration, pre-auction offers, and what to anticipate on auction day. We'll also provide valuable tips to help you prepare for a successful auction purchase.

Firstly, it's essential to understand the distinction between an auction and a private sale:

Auction vs. Private Sale

In a private sale, a property is listed with a real estate agent at an asking price. Buyers submit offers to the agent, who represents the seller. Conversely, in an auction, a property is sold at a specific date, time, and location through a competitive bidding process, with the final selling price determined by the highest bidder.

Registering to Bid at Auction

Registration requirements vary among different Australian states and territories. Typically, registering as a bidder is mandatory before participating in an auction. In states such as New South Wales, the ACT, Queensland, Northern Territory, and South Australia, prospective bidders must register in advance and provide photo identification. If you plan to have a buyer's agent or real estate agent bid on your behalf, they will need to provide their license number. Once registered, you will receive a bidding number to identify your bids. In Victoria, Western Australia, and Tasmania, pre-registration is not necessary, and anyone can participate on auction day.

Pre-Auction Offers

To potentially gain an advantage on a property scheduled for auction, you can consider making a pre-auction offer. A pre-auction bid is a written offer made by a potential buyer before the auction. Making such an offer signals your serious interest in the property. It is crucial to conduct thorough research on the property and the market to ensure that your offer is taken seriously by the seller.

Auction Process Step by Step

If you decide to bid on auction day, it's essential to understand the process leading up to and during the auction:

1. Inspect the Property and Obtain Reports

Before the auction, review building and pest inspection reports. Inspecting the property yourself before the auction allows you to make an informed decision.

2. Review the Contract of Sale

The contract of sale is typically available for review before the auction. It's advisable to have a solicitor review it to ensure there are no issues, as you may need to sign it immediately if you win the auction.

3. Get Home Loan Pre-Approval

Ensure you have pre-approval for a home loan. This pre-approval provides an estimate of the amount a lender is willing to lend you, allowing you to set your bidding limit.

4. Understand Auction Rules

The auctioneer will explain the rules, which can vary slightly by state. Rules may include vendor bids, refusal of bids not in the seller's interest, no post-hammer bids, assistance with disputed bids, and a prohibition on dummy bidding (a practice illegal in Australia).

5. Bidding

Once the auction begins, you can start bidding. The auction progresses until the reserve price (the minimum acceptable price for the seller) is reached. After reaching the reserve price, the property is "on the market" and the highest bidder secures the sale. If the reserve price isn't met, the property may be passed in, allowing negotiations between the highest bidder and the seller.

6. Signing the Contract and Paying the Deposit

If you're the successful bidder, you must sign the contract immediately and pay the deposit, which typically ranges from 5-10% of the purchase price and is usually paid by cheque.

Post-Auction

Unlike private sales, there is no cooling-off period after an auction. Once you've paid the deposit and signed the contract, the property transfer process begins, typically handled by a conveyancer or solicitor.

Preparation for Auction

To prepare for an auction, consider the following tips

1. Understand Auction Terminology

Familiarize yourself with auction-related terms such as vendor bid, dummy bidding, reserve price, on the market, and passed in.

2. Conduct Research

Prior research about the housing market in your desired area, recent sales, median house prices, and attending nearby auctions will provide valuable insights.

At Everest Home Loans, we are here to assist you in your journey to homeownership. With the right knowledge and preparation, you can confidently bid at auctions and secure your dream home in Australia.