Selling by Auction - what to expect on the day
Deciding to put your house on the market is a huge decision and ultimately every vendor want to receive the highest price for their property.
Preparing for an auction can be an exciting, yet stressful and overwhelming time. We’ve all seen the drama of an auction on TV or live auction from your neighbourhood - the auctioneer with their quick-fire speech, waving hands and pointing fingers. Understanding the process of what actually happens in the lead up to the auction and on the day and the key auction terms is critical if you are selling your property at auction.
If you’re a buyer, you want to keep a cool head and ensure you understand the rules and process of an auction before bidding; if you’re a seller, you want to make sure you work with a good auctioneer, good agent with good auction campaign and put yourself in the best position possible to secure a successful sale.
Auction is the most transparent way to sell real estate. Buyers can see who they're competing with and sellers can see firsthand what the market is prepared to pay for their home. With no cooling-off period, an auction is a fast and efficient way to sell your home.
Benefits of selling at auction
- Sense of urgency
There is a great sense of urgency because buyers are pushed to make a decision much faster than compared to a private sale. This is because there is a clear end date in sight and if they don’t make up their minds in time they will miss out on the sale. So, an auction attracts buyers who have a genuine, strong desire and are committed to buy the property. Fortunately, you don’t have to deal with buyers who are uncertain and keep delaying the sale.
- Rate of sale
It is estimated that properties sell 30% faster if the house goes up for auction compared to private sale. A private sale can be drawn out for months due to negotiations going backwards and forwards between the buyer, seller and real estate agent. On the other hand, an auction is restricted to a time frame and as a result it sells a lot faster. As the seller you will know the exact date when it will be sold and don’t have to deal with an extended, drawn out process that can occur with private sale. Nor do you have to put up with numerous and never ending open for inspections.
- Competition amongst buyers
An auction can be highly competitive if there are multiple buyers interested in buying the property. The competitive bidding can cause the price to exceed the expected value of the property as people tend to bid higher than they originally expected to spend due to the high pace atmosphere of the auction.
- Protection with Reserve Price
As the seller you can predetermine a reserve price, which means if the property doesn’t reach a certain amount then it will not be on the market for sale. Having a reserve price gives you protection that the house won’t sell until it reaches the amount of money you would like. If it doesn’t reach the reserve price the real estate then consults the highest bidder and attempts to negotiate a price both parties are happy with.
- Definite sale
Assuming the reserve price is reached there is no uncertainty, the property will definitely be sold. This is unlike a private sale where the bidder can withdraw at any time. At an auction once they make a bid they are committed to purchasing the property.
- Terms and conditions
The vendor creates specific terms and conditions based on what they want to happen in regards to settlement. The buyers must agree to these conditions.
With all of these benefits in mind you must also weigh up some of the limitations of an auction.
There will be additional costs involved due to hiring an auctioneer. You may also spend more money on the marketing campaign as usually you have a shorter period of time of exposure compared to private sale because an auction has a specific date.
- Intimidated buyers
Potential buyers may not like the environment of the auction such as the immediacy of the process and the competitive nature. This may deter them from placing a bid on the property.
- Potential not to reach reserve price
Bidding can often be quite slow and might not reach the reserve price the seller has set. This can lead to the property passing in. This then means the seller has to consider selling the property for less than anticipated or has to extend the marketing campaign.
If you are still unsure whether or not to put your property up for auction the best thing you can do is ask for some advice from the people who know the property market best. We are happy to answer any questions and give you recommendations on whether your property is better suited to auction or private sale.
When it comes to preparing for auction, the more well-researched you are, the better. Here, we break down everything buyers and sellers need to know about the home auction process, from preparing the sale to what happens during and after auction day, as well as some home auction tips to help make the process a success for everyone involved.
Selling at auction: advice for vendors on how to prepare
- Choose the right agent and auctioneer. Your agent and auctioneer will have a big impact on the outcome of your auction, so it’s crucial to take time to find the right partner to help you sell your home. Choose someone with a proven track record: look at the agent and auctioneer’s recent sales in the area, and make sure your auctioneer is registered under the Land Agent’s Act.
- Set your reserve price. As the seller, you can set the reserve price with your agent. Look at previous auction results in the area to get an idea of how much you can expect from your property, and consider the historical supply and demand during your time of sale (for example, there are often less buyers over the Christmas period).
- Spend time to prepare and style your home. Whether it’s styling your home or making renovations to increase your property’s value, little changes can boost the appeal of your home in order to attract potential bidders. Keep your house looking nice all the way until auction day - you never know when a prospective buyer is looking.
Select a suitable spot to host the auction. You want to create a welcoming environment for bidders, while also making sure that your auctioneer can be heard clearly. Usually the best spot to host an auction is the garden, or the entrance of your property.
Talk to your auctioneer and agent about the process on the day. Auctioning your home is a big commitment, and the more familiar you are with the process, the more comfortable you’ll feel. Ask your agent to walk you through exactly how the auction will go, so you aren’t left in the dark during the day.
Before auction day
The very nature of an auction means that they can happen very fast so it is important that you talk to your agent ask any questions you may have about the process, about setting your reserve price and whether you will be making a vendor bid on the day. Your agent legally must know if you plan on placing a vendor bid so make sure you discuss this.
- Schedule of Procedures
Your agent should provide you with a detailed schedule of what is likely to happen on auction day. If this is not provided then you should ask him/her to do so. Issues may include: where should I be during the auction, what if no-one bids, what happens if we don’t reach the reserve, should I have my family and friends with me for support?
- Attracting a crowd
On the morning of auction day, your selling agent will go to nearby streets and busy roads to place sign boards (also known as ‘A frames’). These are intended to attract passers-by and publicise the auction.
- Meeting the agent
You should have met with your agent a day or two prior to auction to finalise most details so the auction day conference will really be a confirmation of that meeting.
In most cases your selling agent will meet you at the property about 45 minutes before the auction is scheduled to commence. During this meeting, you will confirm important information regarding the auction, such as;
– Your reserve price
– How many bidders are anticipated to attend
– How and when you will communicate with the agent during the auction
– Bidding increments
– What happens if the reserve is not met
– How any vendor bids will be used
– Confirm that you or any friends will not be bidding at the auction
- Pre-auction inspection
Most agents will open the property for inspection at least 30 minutes before the scheduled auction. This allows potential buyers to have a final look at the property, so it is important to ensure that your house is well presented and looking its best. During this time, the agent must display the mandatory rules and information regarding the auction in a prominent location for potential buyers to see for at least 30 minutes prior to the auction commencing.
On auction day
Prospective buyers are encouraged to view the property one last time before they bid. This means you should ensure your property is looking spotless and well-presented - especially if you've chosen to host the auction at your property rather than an office or conference room.
Your agent needs to clearly display documentation of the property at least 30 minutes before the auction. It is a requirement by law to have this information easily viewable for all interested parties.
In most states, all interested buyers are required to register before the auction commences in order to receive a bidder’s number. This list is confidential and you will not be able to see it even after the auction.
Once the auction preamble is concluded, the auctioneer will call for an opening bid from the crowd. If no opening bids are received, the auctioneer may commence the auction with a vendor bid.
From this point onwards, the auctioneer will control the flow of the bidding. As the bidding continues, the outcome of the auction could be one of two options:
- Your reserve price is met – if this occurs the auctioneer will declare that the property is “on the market”. After the highest bid has been made, the auctioneer will drop their hammer and the property is declared as sold. Once the hammer falls, no more bids can be accepted. Congratulations on a successful auction! Once the property has been sold, the buyer is legally required to pay a deposit on-site (usually around 10%) by personal or bank cheque. The buyer and the seller will also need to sign the contracts and agree on a settlement day where the remaining balance of the property is paid. This period is normally 30, 60, or 90 days after the auction ends.
- Your reserve price is not met – During the course of the auction, the auctioneer may stop the proceedings and say they are seeking advice or instruction from the vendor. This gives the auctioneer time to discuss the progress of bidding with the you, the seller.
if your reserve price is not met, or is close, the auctioneer will ask you if you are willing to adjust your reserve and sell the property for the highest price. If you are, the auctioneer will announce to the crowd that the property is on the market or in other words, that it will be sold to the highest bidder.
If the bidding does not reach the reserve price or a price the seller is happy with, the auctioneer may ‘pass in’ the property. If this occurs, you are obliged by law to enter into private negotiations with the highest bidder. If you cannot agree on a sale price with the highest bidder, the auctioneer may approach other bidders to try and negotiate a sale or choose to relist the property on the market. If the two parties agree on an amount on the day, then the process follows the same as if the property was successfully sold during auction.
If the property is passed in on a vendor bid, by law any auction report must state this to be the case.
The auctioneer's job & rules of auction
Essentially the role of the auctioneer is to control a public negotiation process where potential buyers are competing to buy a property.
The auctioneer has to make sure the process takes place in an orderly and legal manner and while there is often an element of showmanship in the role, with humorous asides and jokes, the auctioneer must always conduct him or herself professionally.
Before the auction commences they will need to announce terms and conditions in accordance with state law and any rules that surround your auction in particular. They will encourage bidders to go higher but at the end of the day, each bidder decides how much they are prepared to pay and the seller decides whether they’re prepared to sell at that price.
All bids must be acknowledged and recorded, often by assistants so there are no misunderstandings over who has bought the property and for how much. And no bids can be accepted after the hammer falls or by an unregistered bidder.
A good auctioneer can read body language and create an atmosphere of fun and entertainment to take the pressure off a very serious process. They know how to prevent disputes and how to handle any problems that can occasionally occur. Legislation differs in all states and territories in relation to buying at auction so if you have any queries check with your agent and/or legal professional.
Opening bids & bidding
After the auctioneer has run through the property being auctioned, detailed the features and an overview of the what is included with the property one last time they will invite the audience to an opening bid - or in other words for someone to place a bid on the property. Other interested buyers will then bid on the property in increments until either the property is sold or it is passed in (not sold).
A vendor's bid is used to encourage bidding from buyers. This is placed by the auctioneer or another legally permitted person on the vendor's behalf to assist the property reaching its reserve price.
The amount of the bid needs to be below the reserve price; otherwise it could push the bid much higher. As mentioned earlier if a vendor bid is going to be made then it needs to be declared before the auction actually begins.
A dummy bid on the other hand is a false bid made by a non-genuine buyer. All dummy bids are illegal and attract significant penalties for the vendor (up to $20,000 in SA and up to $55,000 in NSW), the dummy bidder and in some cases the agent if it can be proved they solicited the bid.
Rises and Advances
This is the amount by which bids increase during an auction and is usually dictated by the auctioneer. They could be $500 or $5000, and do not necessarily have to be adhered to - but the auctioneer can reject your bid if they think you have not advanced the bidding by enough.
One of the most crucial terms, the reserve is effectively the point at which the auction becomes “live”. If bidding does not go over the reserve then a negotiation by the highest bidder and seller may take place. This may continue for hours or days but usually a contract on the property is executed reasonably soon after the auction itself. However, once bidding goes over a reserve price the property is on the market and a winning bid is binding, so make sure you don’t overextend your budget or get carried away in the heat of the moment.
When you list your property for sale by auction, you still have the ability to accept pre-auction offers before the auction day deadline. All pre-auction offers need to be submitted in writing to your agent who in turn will present it to you for consideration.
However, in order for this to be rewarding, the offer needs to be solid and stand out to catch your attention. Otherwise, you could allow your property to go to auction and see what the market will give you for your home.
Selling at Auction - Some Extra Things to Consider
When you sell at auction there is normally no cooling off period - the contracts are signed and the deposit is paid on the day.
A 10% deposit is normally paid by the buyer/s with the balance due on the agreed settlement date. If buyer/s prefer only 5%, you must get approval before start the bidding.
The deposit is held on your behalf in the agency’s trust account for an investment account.
Prior to settlement the property remains your responsibility, so it is important to ensure you maintain your home insurance during this period.
Once the contract is signed the process of transfer can begin. You may use the services of a solicitor or conveyancing company to handle transfer on your behalf.
As part of the transfer process, arrangements will be made for the balance of the purchase price to be paid as directed by you to your bank account, or to any party or account you nominate.
Settlement day is the date when the balance of monies owning less costs are paid, keys are handed over and the property then becomes the responsibility of the purchaser.
What Every Seller should do on Auction Day
On site auctions require preparation by the seller as there is likely to be a lot of people in your home for one last inspection, so be sure your home is still looking its best. You may pick up a buyer at the last minute and you certainly don’t want to deter buyers that are there to bid.
Inform your neighbours of the auction day and time, ask that they do you a favour and keep noise to a minimum or go one further and invite them to the auction.
Set up a suitable area to hold the auction. Usually it is held in the garden or on the front footpath, however your agent and auctioneer will be able to guide you. Make sure you agree with your agent whether they want you to be present at the auction or to hide away. The auctioneer and/or agent may feel it is better that you are not present at the auction, as in your excitement you may telegraph your position to buyers and therefore affect further bids.
Good luck and happy bidding!