Tips for buying at auction
What is a Real Estate Auction?
An auction is a public sales process that allows people to make offers (known as bids) for a property. Auction proceedings are governed by law and REINZ Auction Code of Practice. There is a set time and date of sale and all terms and conditions are outlined in advance. The auction contract is unconditional and both buyer and seller are bound to the transaction.
How do I prepare myself for the Auction?
If required, organise finance from a lending authority or a bank.
Auctions are a straightforward process but it is strongly advised that you provide a copy of the auction contract to your solicitor for opinion. Always seek legal advice or opinion prior to bidding at auction. Also ensure you are able to provide the 10% deposit on the fall of the hammer.
You may want to seek independent advice on the potential value of a property or make enquires about recent renovation and/or building reports. Some buyers obtain building inspection reports prior to bidding. Importantly try to attend as many auctions as you can. This gives you a feel as to how the process works and the type of bidding that can occur. It will also make you more comfortable when it comes to bidding on your dream home.
Do I need to register?
At our Bayleys auctions there is no formal need to register before bidding at an auction. However you need to have received the ‘approved buyers guide’ required under the Real Estate Agents Act 2008 prior to bidding and have acknowledged receipt in writing.
For more information about the Real Estate Agents Act 2008 visit www.rea.govt.nz.
How do I bid at Auction?
You need to bid in order to buy. Only by bidding can you indicate your interest in the property. Once the auctioneer has announced the property is ‘to be sold’, the highest bidder will be the winner.
If the bidding, at the conclusion of the auction does not reach the vendor’s reserve price, the property will then be ‘passed in’ or ‘set aside’. In this case, the transparent nature of the auction is lost and any party may be given the option to negotiate with the vendor. It is generally accepted that bidding confidently gives a person the best chance of winning the auction. Go to the auction with a price in mind but allow a certain ‘flexibility’ should it be required at the business end of proceedings.
To bid, simply attract the attention of the auctioneer by raising your hand, calling out a figure, or nodding your head when you make eye contact with the auctioneer. The auctioneer is there to encourage and assist you in bidding, and usually nominates the incremental amount to be advanced. Feel free to ask the auctioneer or an agent should you have any questions about the proceedings.
What is a reserve price and how do I know the property is about to sell?
A reserve is a nominated price, under which, the vendor will not sell. The vendor sets the reserve price with the auctioneer and it is generally established using price feedback throughout the campaign. The reserve is not disclosed to the bidders. When bidding reaches the reserve, the property is then to be sold with the auctioneer clearly indicating this using phrases such as ‘it’s on the market’ or ‘we’re selling now’ or similar.
What is vendor bidding?
The auctioneer has the discretionary right to place bids on behalf of the vendor. This may occur if you and other bidders choose not to bid. If required, vendor bidding, will only take place under a figure that the vendor is willing to accept. The auctioneer is the only person allowed to bid on behalf of the vendor and all vendor bids will be declared and announced as such. All Bayleys vendors have given a written undertaking that they will not bid or have another party bid on their behalf at the auction. So you can participate with total confidence!
Can the property be sold prior?
If the property is marketed by auction and the advertisements contains the words ‘unless sold prior’ or similar, then there is always the possibility that the vendor may sell earlier than the advertised auction date.
Therefore to help protect your interest it is recommended that you inform the marketing agent who can then contact you should the vendor wish to sell earlier than advertised. In such a situation you will be asked to submit your best offer on the auction contract, ensuring that the vendor has all the offers on the same terms and conditions. An offer will be accepted, the contract signed and the property sold.
What happens if the property doesn’t sell?
If the highest bid offered to the vendor in the auction room is not accepted then the property will be ‘passed in’ and the auction concluded. This will allow the vendor to consider any post auction offers which may or may not contain conditions. Normally the auctioneer will give the highest bidder the chance to negotiate for the property during the auction. This ensures that buyers on the vendors terms are provided every opportunity to buy before the property is ‘passed in’ and opened up to buyers on other terms.
What contract do I sign?
You will be signing an auction contract. You should always examine the contract prior to attending the auction. In addition there will be copies on display prior to the commencement of the auction. All terms and conditions are outlined such as warranties (if any) deposit, chattels, settlement date etc. All bidders will be required to have received an approved buyer’s guide under the Real Estate Agents Act 2008. The purchaser must also sign an acknowledgement of receiving this prior to signing the auction contract.