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If you buy property at auction, you cannot make the contract subject to conditions (for example, getting finance) and there is no cooling-off period.
Before you bid:
- research the market, search the internet, attend auctions, speak with several estate agents and monitor auction results
- get independent, expert help on legal, finance and building matters.
An auction is a public sale, usually conducted by an estate agent acting as an auctioneer, and governed by strict rules.
The auction is advertised for a specific place, time and date. Prospective buyers bid and the property is offered to the highest bidder.
There is an advertising campaign with open house inspections for several weeks leading up to the auction date. In the lead-up, the agent may contact you to gauge your level of interest.
On the day of the auction, the property may be open for inspection, generally half an hour before the bidding starts. This gives you a chance to have a final look at the property, the relevant paperwork and the auction rules.
By bidding, you accept the terms of the contract on display before the auction, so you will not be able to negotiate matters such as a longer settlement period.
If the seller has agreed to consider pre-auction offers, you can make an offer through an agent prior to an auction.
Your offer will usually be in the form of a signed contract and the process of negotiation is the same as buying by private sale.
If your offer is accepted less than three clear business days before the auction date, you do not get a cooling-off period (time to change your mind).
There are strict rules about how an auctioneer runs an auction, and how people attending must behave.
The auction rules and the auction information statement outlining Victoria’s auction laws, must be on display:
- for at least 30 minutes before an auction starts
- at the place where the auction will take place.
The auction rules, information statement and announcements the auctioneer must make are set out in the Schedules to the Sale of Land Regulations 2005. Substantial penalties may apply to anyone who breaks the auction rules.
Before bidding starts, the auctioneer must tell bidders:
- the auction will be conducted according to the auction rules
- the rules prohibit bids being accepted after the fall of the hammer
- bidders will be identified on request
- it is against the law to make a false bid, hinder another bidder, or in any way intentionally disrupt an auction
- substantial fines apply to anyone who engages in illegal auction conduct
- whether or not there will be vendor or co-owner bids
- any additional conditions that apply to the auction.
It is illegal to disrupt an auction, but you can still ask questions. During the auction, anyone can ask the auctioneer a reasonable number of questions about the property, the contract, or the auction.If you are bidding, you can also ask the auctioneer to indicate who else made a bid.
Bidding at auction
Auctioneers have different ways of conducting an auction. Generally, they aim to encourage as many bidders as possible to compete, to achieve the highest possible price.
The auctioneer can set the amount by which bids increase. These are called rises or bidding advances.
You can bid at the amount stated by the auctioneer or offer an alternative amount. The auctioneer may choose to accept or reject that bid.
Be clear about your bidding limit. To bid successfully:
- bid confidently
- ask relevant questions of the auctioneer, including who made a bid.
Generally, the amount the bidding advances will decrease as the auction draws to a close.
The auctioneer may:
- refuse a bid at any time during the auction, including when the auction hammer is falling
- if there is a dispute over a bid, resume the auction at the last undisputed bid or start the bidding again
- refer a bid to the seller at any time before the conclusion of the auction
- withdraw the property from sale at any time.
Vendor and co-owner bids
Vendor and co-owner bids are allowed at auctions in two circumstances:
The auctioneer bids on behalf of the seller because the seller is not satisfied with the amount of the last bid. This type of bid:
- can only be made by the auctioneer
- must be announced by the auctioneer when the bid is made.
When a property is jointly owned, one or more of the owners who genuinely wants to buy the property may bid from the crowd.
Co-owners may bid themselves or through a representative in the crowd but not through the auctioneer.
The arrangements for making vendor and co-owner bids must be:
- set out in the rules displayed before the auction starts
- announced by the auctioneer at the start of the auction.
A dummy bid is either a:
- false bid made up by the auctioneer
- bid accepted by the auctioneer from a non-genuine bidder from the crowd.
All dummy bids are illegal.
Auction language: 'on the market' and 'passed in'
On the market
The auctioneer may halt proceedings and say they are ‘going inside’ or ‘seeking advice or instructions’ from the seller. They use this time to discuss the progress of the bidding with the seller.
If the bidding has reached or is close to the reserve price (the lowest price at which the seller will sell), the auctioneer will ask the seller if they will sell at the highest bid.
If so, the auctioneer will say the property is ‘on the market’. Bidding will continue and the property will be offered to the highset bidder, at the seller’s discretion.
If bids do not meet the seller’s reserve, 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.
When is the property sold at auction?
There is no legally binding contract until both buyer and seller have signed the contract of sale.
If you are the successful bidder at the auction, you:
- will be asked to immediately sign the contract
- cannot make the contract subject to conditions and there is no cooling-off period
- sign the contract before the seller, to make your formal offer to buy the property. The seller accepts your offer by also signing the contract
- have to pay the deposit specified in the contract (unless otherwise agreed).
When you and the seller have signed the contract and the deposit has been paid, the sale is binding and enforceable.
The sale is finalised at settlement when:
- all checks have been made
- the title and transfer documents have been exchanged
- the balance of the purchase price has been paid.
Paying a deposit at auction
When you sign the contract of sale after an auction, you will need to provide a deposit. There are no laws about the amount of deposit but it is usually 10 per cent of the purchase price.
If you are using a bank cheque to pay the deposit, your cheque will be for 10 per cent of the amount you are prepared to pay for the property. This means that if you buy the property for less than you expected, your deposit will be more than 10 per cent.
Before the auction you can ask the seller if they will accept a part deposit with the remaining amount due on a specified date. This would require a change to the contract. The seller may or may not agree to this arrangement.
The deposit is held by the seller’s estate agent, conveyancer or legal practitioner in a trust account until the settlement date. The deposit can be released to the seller before settlement, if you agree.
A seller who does not have an estate agent and takes your deposit directly must either:
- pay it to their legal practitioner or conveyancer
- bank it in a special purpose account in an authorised deposit-taking institution in Victoria. The account must be in both the seller’s and your name.