Key Auction Tips - Part 1 Understanding the auction process

Before you can even start thinking about buying well at auction you need to take some time to fully understand what the auction process actually involves. Put simply, a property auction is a public sale by a licensed auctioneer where the property is sold to the highest bidder, providing the reserve price is met.

An auction takes place under unique fair trade and legal conditions when compared to a private treaty sale. These conditions vary across Australia and it is advisable to check the rules that apply in your state or territory by contacting your local Office of Fair Trading.

It is strongly recommended that you have your solicitor or conveyancer check the contract of sale prior to auction to ensure that you understand all the terms and conditions that you will need to abide by if you are the successful bidder.

When you arrive at an auction, the conditions of sale and the contract of sale are available for you to read. The auctioneer will also usually read out the auction conditions before the bidding gets underway. A few examples of these are:

• The highest bidder is the purchaser, subject to the vendor's reserve price.
• Whether the vendor is entitled to make any bids - if so, how many and under what conditions.
• The auctioneer can refuse any bid that they feel is not in the best interest of the vendor.
• The auctioneer has no authority to accept a bid after the fall of the hammer.

   

Before the auction starts, you're entitled to ask the auctioneer any reasonable questions about the property.

The reserve price is the vendor's insurance policy that the auctioneer won't sell their property for less than they want during the auction. In short, it's the minimum price that the vendor will sell their property for. Once the bidding starts, the property isn't really for sale until the reserve has been met.

If the bidding doesn't reach reserve then the auction has failed and the property is passed in. At this point, the vendor usually starts negotiating with the highest bidder as a courtesy - it doesn't mean that other bidders can't negotiate as well.

If the bidding reaches the reserve, then the property is truly on the market for sale and the highest bidder will buy the property. Remember, there's no cooling off period or chance to change your mind which is why you must understand the conditions of sale well before this point. When the hammer falls to the highest bidder - the property is sold!

Next week, in this series of articles on key auction tips, I'll take a look at how to research the market. 

Take a look at my best seller The Insider's Guide to Saving Thousands at Auction for everything you need to know about auctions.

Related blogs: Key Auction Tips series:

• Part 1 - Understanding the auction process
• Part 2 - Organise Your Finances and Research the Market
• Part 3 - The Psychology of Auctions
• Part 4 - Selling Agents' Tricks of the Trade
• Part 5 - How to Prepare Your Auction Strategy

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