Buying at an auction in Australia

An auction is one of two legal processes of transferring property ownership from the seller to the buyer.

Home Ownership
Erin Howell

An auction is one of two legal processes of transferring property ownership from the seller to the buyer. It involves going to an auction setting, either online or in person, whereby people bid on the day rather than by privately submitting bids to the real estate agent. It is a scheduled time to do so instead of a lengthy negotiation process.  

Buying at an auction can be a daunting process for first-home buyers. It is fast-paced, and you must be prepared with your due diligence before the auction day. This guide will give you an overview of the process and how to be ready for one in your home-buying journey.

Private Sale vs An Auction:

Almost every home for sale will be available via private treaty or auction. Understanding a private treaty sale vs. a property proceeding to the auction will help inform your bidding strategy.

A private treaty sale is where the vendor sets the price they list the property, with no intention to run a formal auction.

  • Generally, this is after research into the market and discussions with their agent to determine a realistic outcome. The vendor then starts negotiating with potential buyers via their agent. The property will stay on the market until it sells. 

An auction sale is where buyers compete for a property by placing bids. The sale price is decided upon the fall of the hammer and sold immediately to the successful bidder. Auctions can be both live and online. 

  • An auction has a reserve price, which won’t be disclosed prior. This is the minimum price that the seller will accept as the winning bidder. If the reserve isn’t met at the auction, the property can pass in, meaning the vendor's price wasn’t satisfied.
  • At this point, the agent will often negotiate with the highest bidder. It is essential to refrain from bidding against yourself here - buyers are in a great spot if the home passes in. Properties that are passed in, and don’t sell in subsequent negotiations on the day, will often end up back on the market, offered via private treaty.

How does an auction work?

The Auctioneer

  • All auctions are run differently, but most follow a similar pattern. 
  • The auctioneer will run through the auction rules at the start, and the highest bid will win on the day as long as the bid meets the reserve price. A reserve price is set before the auction and is the minimum price a seller would be willing to accept on the day
  • An Auctioneer will run the auction. Their goal is to get the vendor the highest price possible for their house. During the bid, they will use tempo, direct requests for bids, enthusiasm and encouragement to get as many bidders as possible to place their highest bid.
  • Auctioneers will set increments that they would like the auction to move with, but you can increase them in line with your strategy. E.g. $10,000 at a time, or if the auction slows, you can choose $1000 increments.
  • You do not need to accept an auctioneer's request for a bid, nor match a bid they suggest. Don't be discouraged if an auctioneer rejects your bid during the process.

Vendor Bids

  • In some states (like NSW), selling agents or auctioneers can make vendor bids—which is often used to set a minimum price for a property. Before the auction, the auctioneer must make it known that they can make a vendor bid. The auctioneer must announce that they are making a vendor bid before or during the bid process.
  • Registered bidders can then choose the continue bidding after the vendor bid.
  • Dummy bids are illegal for sellers to partake in and result in significant fines. That means they can’t have a family member bidding on a home to increase prices.

Making the winning bid

  • If you put in the winning bid at an auction, you will pay the 5% or 10% deposit on the day of the auction immediately after successfully winning. 
  • Unlike buying a home via a private treaty, there is no cooling-off period with an auction. An agent will often ask for a signed 66w certificate for offers before the auction, meaning that the offer would be immediately binding.

Stick to your limits

  • Prospective buyers should know the property's value, the repayments they are in for and the process of a post-auction sale before bidding. It can be an emotional journey to buy your dream home, and it is essential to do your legal and financial research.
  • Know your bidding limit before the auction and stick to it. Also, ensure you know your loan pre-approval limits and that they are still up to date (usually valid for 3-6 months).

Before an auction, get your financing organised

  • Conditional approval is what you will need in place to attend an auction. This is because if you are bidding at an auction, there is an immediate no-finance clause, which means you can’t back out if you fail to get a loan. If this does occur, you would be in breach of contract and lose your entire deposit and have legal ramifications.
  • When you apply for financing, your lender or broker will provide you with a letter outlining your conditional approval. The letter will include a list of things you will need to provide to your lender to obtain unconditional approval, such as a contract of sale for the property; this is when your loan will be fully approved. That is the amount you’ll likely be able to borrow after verifying some of the preliminary information you have provided to your lender, plus a credit check.

You can't renegotiate the price

  • Home buyers must complete all due diligence, including building and pest inspections, before the auction date. There is no cooling-off period to achieve this in an auction sale. Auction terms don’t allow you to pull out after you have won. So check your pest and building inspection reports thoroughly. You are committed to the purchase as it is an unconditional sale.

What are auction clearance rates:

The rule of thumb is that lower clearance rates imply the Vendor’s expectation is not being met, which means a mismatch between vendor pricing expectations and a buyer's willingness to pay. This lower clearance rate means fewer properties are selling - indicating a slowing market.

Domain Auction Reports for July 2021 and July 2022 show that the auction clearance rates dropped in Sydney from 70.5% in July 21 to 51.9% in July 22, representing an 18.6% drop in sold homes at auction in the period.

What does scheduled for auction mean?

Understanding a real estate listing will give you great insight into the sales process when buying a home. Here are some things you can think about when making an offer on a home and whether you should wait for the auction (if it is scheduled) or put in an offer before it.

  • Are they in a rush, or are they happy to wait for the right offer?
  • If they are in a rush, you can work quickly with the agent to achieve a great outcome.
  • If the property is going to auction, you can ask if the vendor will be looking at offers prior. This will indicate if the vendor is committed to going to auction or if this property has the potential to sell before.
  • If the property isn't popular, you could buy the home for a great sale price. If you make a pre-auction offer, ensure you aren’t overpaying. You can check out our blog on securing a great purchase price.

Know your local laws: Queensland Tip

A price guide isn't legally available if the property is going to auction in QLD. So instead, ask the agent for a list of comparable sales.

Of course, you should research, as it is in the agent's best interest to give you the most expensive sales in the area!

There will be different laws that are state and territory dependent for property auctions and sales. Your buyer's agent, lender and legal team will support you in understanding local regulations. Australians can expect other laws across the country, with a few country-agnostic rules.

Remember: You can make an offer before the auction

Even if a property is going to auction, agents legally must present all offers to their vendors. If the auction is weeks away, but you would like to make an offer, you absolutely can. 

If the auction is approaching, the agent may expect an unconditional offer. In this circumstance, the terms and negotiations work like a private treaty and are known as ‘offers prior’, meaning offers before a scheduled auction. You can read more about negotiating a sale in our blog.

At OwnHome, we help all customers navigate home purchases and get onto the property ladder, including attending auctions and negotiating asking prices. We support homeowners to get into the market without needing hundreds of thousands up front in deposit savings. If you’re considering buying a home and want to learn more about rent-to-own, you can use the buying power calculator online.

Please note: This article is intended to be general and is not personal financial advice. It does not consider your objectives, financial situation, or needs. You should always engage appropriate professional advisers to assist you in making any substantial financial decisions 

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