The Auction Process
The purpose of an auction is to achieve a desired financial result within a specified timeline in relation to the sale of a property.
This is achieved during 3 phases of the auction process - Marketing, Auction, Post Auction.
The marketing phase normally commences around 6 weeks prior to the actual auction date and consists of a well managed campaign of targeted advertising (online, newspaper, magazine, letterbox drops, personal invitations, etc.), all designed to give maximum exposure of the property to potential buyers.
This phase also includes conducting numerous 'open for inspections' for the agent to personally showcase the property, and to ascertain the degree of interest in the property by each and every group of people that attend these inspections.
During the marketing phase the real estate agent may receive offers on the property and submit these to the vendor, who may negotiate terms with a buyer and enter into a contract prior to the auction date. The terms and conditions of such contract may be as agreed to by the vendor and purchaser. This in fact occurs quite frequently in areas of high demand for property, thereby achieving the result for the vendor within the timeline set for the property to be sold within pricing expectations, as well as the purchaser having secured the property on agreeable terms.
In the event the property is not sold prior to the auction date, the agent will shortlist a number of interested parties who are likely to attend the auction and bid for the property, and communicate with them regularly up to and including the auction day.
As auctions are essentially unconditional, not being subject to finance conditions or pest and building inspections, potential buyers are strongly advised to carry out all inspections prior to auction date. This is arranged through the real estate agent, and the costs thereof are for the buyers account.
Buyers at auction should also ensure that they have any financing requirement and settlement timelines pre-approved prior to the auction date, as once sold at auction there is a legal obligation for the buyer to complete the contract on the settlement date.
On the auction day, the agent and auctioneer will have a copy of the full contract to be entered into by the vendor and the buyer on public display, along with any material facts pertaining to the property (eg. encumbrances, caveats, body corporate, etc.)
Buyers are required by law to formally register themselves in order to take an active part in the auction process, and they will be given a numbered paddle for the purposes of recording their bids. To register as a buyer requires producing an ID such as a drivers licence or passport.
The vendor will give the auctioneer and agent the confidential reserve price on the auction date, and this is often done 15-20 minutes prior to commencement of the auction.
Prior to the actual commencement of the auction, the auctioneer will announce details of the property being auctioned and the terms and conditions under which it is being auctioned.
The auctioneer may register a `vendors bid` which is sometimes used to start the bidding process, and this practice varies amongst auctioneers.
To indicate that the reserve price has been met without actually revealing the amount, the auctioneer may announce that the property 'is on the market'.
Buyers should be aware that the auctioneer is working on behalf of the vendor through the real estate agency, and has a duty of care to obtaining the best possible price for the vendor in the auction process.
Quite often during the auction process, the auctioneer may temporarily stop the bidding to allow negotiations to take place between buyers and the vendor, and then return to the bidding process.
If the property is sold on the auction day, the purchaser would be required to execute the contract and pay the required deposit on that day. The auctioneer may execute the contract on behalf of the vendor.
The auctioneer will pass the property in if bids have not met the vendor's expectations in terms of reserve price, and the property may then be sold under conditions negotiated between buyer and vendor. This can occur where buyers are reluctant to commit to a price under auction conditions ( being unconditional ), and are more at ease negotiating a private treaty contract with the vendor that might include terms not applicable to auctions.
If the property is passed in on the auction day, that is the end of the auction process, and the vendor may decide to place the property on the market or withdraw the property from the marketplace.
If the property is placed on the market, the terms and conditions would revert to those which are negotiated between vendor and purchaser in normal private treaty contractual agreements as opposed to the unconditional nature of an auction contract.
In practice, most properties that are passed in at auction are sold within a few weeks of the auction date.
This document has been developed and produced as a community service and is offered as a guide only. Please use the information provided in this document as a prompt to further discuss this information with your preferred Real Estate agent.