The Auction process

Auctions are a unique blend of excitement, strategy, and emotion. For those who have never experienced one, the process can seem daunting. But fear not....  

In this article, we unveil the secrets behind the auction process and provide some tips on how to help you navigate this exhilarating journey. 

Auction vs. private sale 

It's important to understand the differences between an auction and a private sale. In an auction, the property is sold to the highest bidder on the day, with a set reserve price. Bidding is open and transparent, creating a sense of urgency and competition among buyers. 

In contrast, a private sale involves negotiations between the seller and potential buyers. The price is often negotiated over a period of time, and the sale is subject to conditions such as a cooling-off period and building inspections. 

The auction process 

To participate or bid at an auction, potential buyers must register with the vendor’s agent and be given a bidder’s number.  

All registered bidders will also receive the bidder's guide from the selling agent. The bidder's guide is a document that contains important information about the property and the auction process, and it must be provided to bidders before the auction. It typically includes: 

• Property details: Description of the property, including size, features, and amenities. 

• Contract terms: Details of the contract of sale, including any special conditions or clauses. 

• Auction details: Date, time, and location of the auction, as well as the auctioneer's name. 

• Reserve price: The minimum price the seller is willing to accept for the property. 

• Bidding process: Information on how the auction will be conducted, including bidding increments and any rules or regulations. 

Reviewing the bidder's guide thoroughly will help you understand the auction process and make informed decisions on the day of the auction. 

What happens at an auction? 

At the commencement of the auction, the auctioneer will address the crowd, introduce the property, and outline the auction rules.  

Bidding will then begin, with interested parties openly placing bids on the property. The auctioneer will acknowledge each bid and continue to solicit further bids until the property is sold. 

Throughout the auction, the auctioneer may make vendor bids on behalf of the seller to increase bidding momentum or reach the reserve price. These bids must be clearly identified as vendor bids to avoid confusion (agents are required by law to have a list of auction conditions - details on the conditions of seller bids will be included on this list) 

Once bidding reaches the reserve price (or surpasses it), the property is considered ‘on the market’, and the highest bidder will be declared the winner. The successful bidder will then be required to sign the contract of sale and pay the deposit immediately. 

Tips to successfully navigate an auction:  

First-time attendees often underestimate the emotional rollercoaster that comes with auctions. The thrill of competition can lead to impulsive decisions, causing bidders to stray from their budget. Remember, winning at any cost may not equate to a successful purchase in the long run, so it is crucial to stay grounded and rational throughout the process. 

Before bidding at an auction, it is advisable to attend a few auctions as a bystander – to gain an understanding of the atmosphere, of how an auction works on the day, and also to witness different strategies employed by registered bidders. 

Before diving into the frenzy of bidding, establishing a rational mindset is essential. Too often bidders get swept away by the excitement of the moment – only to then find themselves stretched when the reality of an exuberant winning bid sets in.  

Understanding your finances 

Understanding your finances is paramount when preparing for an auction.  

An experienced broker can help you assess your income, expenses, and savings to determine how much you can comfortably afford to borrow and repay. Consider factors such as loan repayments, ongoing expenses, and potential interest rate fluctuations. 

It's also essential to factor in additional costs associated with purchasing a property, such as stamp duty, legal fees, and building inspections. By having a clear understanding of your financial situation, you can make informed decisions and avoid overcommitting yourself at the auction. Speaking with a broker will help you go into an auction feeling prepared and confident. A broker can also help you prepare for and obtain finance pre-approval from lenders - a vital component to ensuring you can afford to purchase the property you are bidding on. 

The importance of obtaining pre-approval  

A mortgage pre-approval is a commitment from a lender to provide you with home financing up to a certain loan amount. It is based on a review of your credit history, credit scores, income and assets. A mortgage pre-approval is not a loan guarantee, but a step toward receiving a mortgage. 

Obtaining pre-approval for finance before attending an auction gives you a clear understanding of your borrowing capacity, allowing you to set a realistic budget and bid with confidence. It also demonstrates to sellers that you are a serious buyer, potentially giving you an advantage over other bidders. 

Without pre-approval, you run the risk of overstretching your finances or missing out on your dream property due to delays in securing finance post-auction. By obtaining pre-approval, you can act swiftly and decisively when the opportunity arises.  

To understand further details on the requirements for obtaining pre-approval, contact us. 

Preparation is key 

Preparation is the cornerstone of success at an auction. Before the big day, conduct thorough research on the property, its location, and any relevant market trends. Attend open inspections to familiarise yourself with the property's condition and features.  

Researching comparable properties in the area to gauge market value can help you determine your maximum bid.  

Once you understand your finances, consider setting a strict budget.  

Knowing your limits will prevent you from bidding beyond your means.  

On the day of the auction 

Arrive early to the auction venue to scope out the competition and get a feel for the atmosphere. Position yourself strategically, preferably near the auctioneer for better visibility and communication. Stay composed and avoid revealing your intentions to other bidders. 

Bidding strategies 

There are various bidding strategies employed by attendees at auctions: 

• Confident start: Begin with a strong bid to assert dominance and discourage competitors. 

• Incremental bidding: Increase bids gradually to gauge the competition's threshold and maintain control. 

• Strategic silence: Stay silent to observe other bidders' behaviour and swoop in with a decisive bid when the time is right. 

• Nervous Nelly: Appear hesitant to bid to throw off the competition, then strike unexpectedly with a bold move. 

• Last-minute surge: Withhold bidding until the final moments to catch competitors off guard and secure the winning bid. 

Choose a strategy that aligns with your comfort level and financial capacity, and be prepared to adapt as the auction unfolds. 

Summary: 

Attending an auction is a thrilling experience that requires a delicate balance of emotion and reason.  By preparing diligently, understanding your finances, adopting a rational mindset, and employing effective bidding strategies, buyers can navigate the auction process with confidence and success.  

To ensure you understand your finances and obtain pre-approval prior to auction, book some time us and discuss your next steps.