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What is an auction?

No doubt you have seen pictures of auctions in the newspaper and on television. They typically involve a crowd standing around in the yard of a house, or in the street out the front, looking at a man in a suit with his arm raised. But did you know that an auction can also be held offsite in a meeting room?

Wherever it is held, an auction is simply an event where people who want to buy a property come together and publicly bid against each other for the right to buy it. The highest bidder gets the property.

An auctioneer, who is usually a real estate agent representing the seller, conducts the auction by standing in front of the potential buyers and acknowledging the bids they call out.

The auction ends when no one is willing to offer more than the current highest bid, and person who made that bid wins the property if the bid is above the reserve price set by the seller.

If you have your heart set on a property that is being sold at auction, you may feel a bit daunted. That is only natural. Research shows that nearly two thirds of Australians don’t feel confident that they could bid for a home at auction.

The good news is that, with a bit of preparation, buying at auction is something anyone can do safely and confidently.

The broad rules are the same as buying through private treaty: do your research, get good advice, lock in finance early, and don’t exceed your financial limits.

Below, we spell out the simple steps that will allow you to purchase with confidence at an auction.

The key difference between an auction and a private sale

The most important differences between buying at auction and buying privately are that:


With an auction the bidding process is public, so everyone knows what everyone else has offered for the property. This makes it easier for you as a buyer because you have the same information as the seller, unlike a private sale where only the seller knows who else is bidding and what they are offering.


If the hammer falls and you are the highest bidder, you have to sign the contract right there and then and supply a cheque for the deposit. There is no cooling off period so if you have to pull out of the purchase, you will lose your deposit and be in breach of the contract. There can be very serious legal consequences if you cannot settle the sale. This means that preparation is even more important with an auction than with a private sale, especially with getting finance arranged.


Before the auction

Most of the steps you should take before bidding at an auction are also true if you are buying privately but preparation takes on added importance because the negotiating timeframe is shorter and you can’t back out if you change your mind.

1 Know the market

The key to successfully buying a property, whether it is by private treaty or at auction, is thorough research. Look at the recent sale prices for similar properties, and go to auctions. It is a good idea to try to go to a few auctions first to see how they work anyway.

If you can become a good judge of the market value of properties in the area you can avoid overpaying at auction.

Remember: It is illegal for a seller or their agent to give you a price guide for an auction property. This is because they cannot know how high the bidding will go. Before it was banned, agents were notorious for deliberately underestimating the price in order to boost the number of people attending the auction, wasting the time and dashing the hopes of many homebuyers.

2 Lock in your finance

If you are the highest bidder at the auction, you have to sign the contract, and there is no cooling-off period. If you cannot settle the price of the home by the settlement date, you will lose your deposit and be in breach of the contract. There can be very serious legal consequences if you cannot settle the sale. To protect yourself against this calamity, ensure you have done the following before you bid at an auction:

  • Got your finance pre-approved, including the maximum amount you can borrow. You can get a quick Auction Approval here.
  • Ensured you have enough money available to pay the deposit using the method specified by the seller's agent (this is usually 10%).

3 Know the property

When you purchase privately, your contract will typically have a Building and Pest Clause which allows you to get written reports from qualified building and pest inspectors about the property and withdraw from the purchase if they are unsatisfactory. This is not the case with an auction, so you need to get these reports BEFORE you bid. To bid with confidence, follow the steps below:


Thoroughly inspect the property and get a professional building inspection and pest reports.


If the property is in a strata scheme, review the strata reports.


Review the contract with your lawyer or conveyancer and ensure you are comfortable with it.


Do all other necessary checks, such as a:

a) a land tax clearance search
b) a swimming pool inspection (if relevant).

4 Work out your price limit

Before you go to an auction, you need to know exactly what your maximum purchase price is so you don’t get carried away in the heat of a bidding war. Your maximum purchase price should be the lesser of the following two amounts:


Your estimate of the fair market value of the property


The maximum amount that you can personally afford to pay, taking into account repayments on your home loan.

This is where early conditional-approval of your home delivers further benefits. Conditional approval, which is also known as pre-approval, preliminary approval, or Auction Approval, is a commitment by a lender to lend you up to a certain amount, subject to conditions such as verifying your income and getting a valuation on the property.

During the process of applying for an Auction Approval with, your loan specialist will review your income and expenses with you to determine what you can realistically afford to repay, and what you can afford to bid for the home.

If you apply for Auction Approval before you even start looking for a home, you will get the most benefits because you'll know exactly what you can afford from the outset and won't waste time looking at homes that are outside your price range. You may also be pleasantly surprised to discover that you can afford a better home than you think.

Remember, if you go beyond your maximum price you are opening up a range of problems, in particular, inability to finance the purchase and loss of your hard-earned deposit and the serious legal consequences of failing to settle your purchase.


On auction day

If the property is open for inspection on the day of the auction, use the time before the auction to take a final look at the property, the contract and the auction rules.

Ask the agent for a copy of the Bidder's Guide. The guide will tell you how to register to bid and what kind of identification you need to provide.

Pre-auction offers

Sometimes the vendor will agree to consider pre-auction offers. In this case, you can make a pre-auction bid through the agent and potentially make the property off the market before the auction. The negotiation process before the auction is the same as buying by private sale.


The Auction Process

To bid at an auction, you must first register with the seller’s agent and be given a bidder’s number. You can do this at any time before the auction, including on the day.

The bidding will be managed by the auctioneer.

At least half an hour before the auction, your agent must display documentation about the property. The auctioneer will start the auction by announcing the laws applying to auctions in that state and the rules applying to this specific auction.

They also need to announce the conditions of sale. These might include:


The required deposit


Inspection details


Any other relevant details

The auctioneer will then ask for an opening bid and state the amount that bids should rise by, such as $5000 increments. You can bid a smaller amount, such as a $1000 increment, but it's up to the auctioneer if they accept it.

If the reserve price is reached

If the bidding goes above the vendor's reserve price, the auctioneer will announce that the property is "on the market" meaning it will definitely be sold to the highest bidder at the auction. If the reserve price isn't reached the auctioneer will privately ask the seller if they wish to sell at a lower price.

Either way, when the final bid is reached and the seller is happy with the price, the auctioneer will announce "going once, twice, three times..." and if no more bids are offered the auctioneer will then call, "SOLD".

If the reserve price is not reached

If the bids don't reach the reserve price, and seller isn't willing to sell for less, the property is "passed in" meaning it is not sold.

In most states, the vendor's agent will then approach the highest bidder to negotiate exclusively in private.

If you are the highest bidder, and you make an offer on a passed-in property on the same day as the unsuccessful auction, and it's accepted and contracts are exchanged that day – the usual conditions apply just like it had sold at auction.

Either way, there is no cooling off period. You must sign the Contract of Sale and provide an immediate deposit – usually 10%. Check in advance with the seller's agent what payment methods they will accept. These could include personal cheque, counter cheque, EFT or deposit bond. The balance must be paid on settlement, normally set by the seller at 30, 60 or 90 days.


Getting auction approved

Just follow the three simple steps below to get Auction Approval for a super-low rate home loan. This means you will be approved, subject to an acceptable valuation of the property you buy and verification of your income and expenses.



Apply online or on the phone with one of our Australian-based loan specialists.


onTrack to Auction Approval

Easily track your application online as it progresses to Auction Approval.


Settle and Save

After you buy the home at auction, call your loan specialist. We will then do everything required for final approval and loan settlement, so you can start saving money.


onTrack Advantage

onTrack is our innovative online portal which allows you to progress your home loan application on your handheld device or computer, from initial contact through to Auction Approval, settlement and beyond.

Using onTrack, along with personal phone service from your loan specialist, you are able to complete your loan application in your own time. You don’t have to wait for a bank branch to open to complete your home loan!

onTrack allows you to download all required forms and documents as well as allowing you to book an appointment with one of our loan specialists at a time that suits you. You can securely submit your forms and supporting documents.

You can also:

  • track the status of your loan, including what you have submitted and what we are doing.
  • communicate with your loan support officer through a real-time messaging system.

onTrack is an end-to-end system, making your switch to hassle free and fast.

onTrack gives you more control to fast track your Auction Approval and more knowledge than traditional lending processes.


Jargon buster

A person who is not at the auction but submits, in advance, a written or verbal bid that is the top price they will pay.

The number issued to each person who registers at an auction.

The legal terms that govern the conduct of an auction, including acceptable methods of payment, terms, and any other limiting factors of an auction. Usually included in published advertisements or announced by the auctioneer prior to the start of the auction.

Price established by the highest bidder and acknowledged by the auctioneer before dropping the hammer or gavel.

If bids do not meet the vendor's reserve price, the auctioneer will seek more bids. If bids still do not meet the reserve, the property may be 'passed in' or withdrawn from auction. The highest bidder then gets first right to negotiate with the seller.

Towards the end of the auction, the auctioneer will call for any final bids. Once there are no more bids, the auctioneer will count down the 'fall of the hammer', which will signal the end of the auction. No bids can be made after the fall of the hammer and the highest bidder is legally obliged to sign and exchange contracts.

The first bid offered by a bidder at an auction.

If the bidding has reached or is close to the reserve price – the figure at which the vendor has previously agreed they will sell – the auctioneer will confirm with the seller that they will sell at the highest bid. If they agree, the auctioneer will say the property is on the market. Bidding will continue and the property will be sold to the highest bidder.

That's why it's important to do your research and secure finance before auction day.

Before the auction, the vendor (seller) will usually tell the auctioneer the minimum price at which they will sell the property. This is called the "reserve price".

During the auction, the auctioneer may place a vendor bid. The auctioneer must announce when a bid is a vendor bid. It signals that the vendor is not satisfied with the price reached at that point of the auction.


Pre-auction Checklist

Things to do before auction day

Inspect the property

Research the local market

Get a property valuation

Arrange your finance here

Get a copy of the sales contract and seek legal advice about the terms and conditions.

Complete all necessary checks, such as title searches and building and pest inspections.

Ask the agent how much deposit they will ask for on the day and how you’ll need to pay it.


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