Buying property at auction

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Overview

A real estate auction is a public sale of a property, usually conducted by an estate agent acting as an auctioneer, and is 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 at the seller’s discretion.

There is usually an advertising campaign with open house inspections for several weeks leading up to the auction date. If you have attended an open for inspection and left your contact details, the agent may contact you in the lead-up to the auction to gauge your level of interest.

On the day of the auction, the property may be open for inspection for one last time, for at least 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, and will not be able to negotiate terms, such as a longer settlement period.

Note: New laws were introduced in May this year to strengthen laws against underquoting in Victoria. Underquoting can occur when a property is advertised at a price that is less than the agent’s estimated selling price, the seller’s asking price, or a price already rejected by the seller. For more information on real estate pricing and advertising, view our Understanding property prices page.

Due diligence checklist

All sellers, or estate agents acting on their behalf, must have our 'due diligence checklist' available to prospective buyers at open for inspections. The checklist aims to help buyers identify any issues that may affect their decision to buy the property, such as buying into an owners corporation, flood or fire risk, or whether there is insurance coverage for recent renovations. View our Due diligence checklist for home buyers page.

Pre-auction offers

If the seller has agreed to consider pre-auction offers, you can make an offer prior to the 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).

Auction conduct

There are strict rules about how an auctioneer runs an auction, and how people attending the auction 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 (Public Auctions) Regulations 2014. 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
  • that bids will not be 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.

Although it is illegal to disrupt an auction, you are allowed to ask the auctioneer a reasonable number of questions during the auction 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

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
  • decide your bidding limit – that is, how much you are willing to offer

Auctioneers have different ways of conducting an auction. Generally, they aim to encourage as many people as possible to bid in order 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 but it is up to auctioneer whether or not to accept an alternative amount.

The auctioneer may:

  • refuse a bid at any time during the auction, including when the auction hammer is falling
  • resume the auction at the last undisputed bid or start the bidding again, if there is a dispute over a bid
  • refer a bid to the seller at any time before the conclusion of the auction
  • withdraw the property from sale at any time.

For more information and tips, view our Buying property - checklist.

Vendor and co-owner bids

Vendor and co-owner bids are allowed at the auction as long as the arrangements for making these bids are:

  • set out in the rules displayed before the auction starts
  • announced by the auctioneer at the start of the auction.

Vendor bid

A vendor bid is made on behalf of the seller if the seller is not satisfied with the amount of the last bid. A vendor bid:

  • can only be made by the auctioneer
  • must be announced by the auctioneer when the bid is made.

Co-owner bid

When a property is jointly owned, one or more of the owners who genuinely want to buy the property may bid from the crowd.

Co-owners may bid themselves or through a representative in the crowd, but cannot bid through the auctioneer.

Dummy bidding

Dummy bidding is illegal and attracts significant penalties.

A dummy bid is either a false bid made up by the auctioneer or a bid accepted by the auctioneer from a non-genuine bidder in the crowd, usually to influence the sale price.

An auctioneer must not:

  • accept a bid if they know the bid was made by, or on behalf of the seller, unless the bid was in accordance with the law and the auction's rules on vendor bids
  • falsely acknowledge a bid, where no bid was made.

It is an offence for any person to arrange for another person to make a bid at an auction that is against the law.

Auction language: 'on the market' and 'passed in'

On the market

The auctioneer may stop the auction 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 highest bidder, at the seller's discretion.

Passed in

If bids do not meet the seller's reserve, the property may be 'passed in' or 'withdrawn from auction'. The highest bidder then gets first right to negotiate a price with the seller. If the highest bidder and seller cannot agree on a price, the estate agent may approach another bidder to negotiate a sale price. If the seller cannot agree on a price with any buyer and they decide to leave the property on the market, they may offer it for private sale. If the agent advertises the property after the auction at the ‘passed in’ amount, they must disclose if it was a vendor bid.

When is the property 'sold'?

There is no legally binding contract until both buyer and seller have signed the contract of sale.

If you are the successful bidder at auction:

  • you will be offered a contract in the same terms that was on display before the auction. You cannot make the contract subject to any further conditions - for example, obtaining finance or having a longer settlement period, unless the seller agrees to them
  • you will be asked to sign the contract to make your formal offer to buy the property. The seller accepts your offer by also signing the contract
  • you must pay the deposit specified in the contract (unless otherwise agreed)
  • there is no cooling-off period.

When you and the seller have signed the contract and the deposit has been paid, the property has been sold and the sale is binding and enforceable.

The sale is then 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 after auction

When you sign the contract of sale after an auction, you will need to pay a deposit. There are no laws about the amount of deposit but it is usually 10 per cent of the purchase price.

The method of payment will depend on the terms and conditions set by the selling agent. Before the auction, check with the agent how they want to accept payment for the deposit.

If you attend an auction with a bank cheque for a 10 per cent deposit, your cheque will be for 10 per cent of the amount you were 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.

If you want to pay a partial deposit, you can ask the seller before the auction 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 must be 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:

  • give it to their legal practitioner or conveyancer to be held in trust, or
  • deposit it in a special purpose account in a deposit-taking institution authorised in Victoria. The account must be in both the seller's and your name.

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