First of all, what is an auction?
An auction is when a crowd of people bid on a property. We all know that. But why are auctions so commonplace?
The general idea with auctions is that they are more transparent – you can see who you are up against and what they’re willing to pay.
An auction is run by an auctioneer who will take bids from vendors in the crowd and announce each bid and when the time comes, slam down a hammer and call the auction to an end.
A house is only usually sold if it goes above the ‘reserve price’.
The reserve price is the minimum the seller (vendor) will take for the house at auction.
At auction, if you are the highest bidder when the hammer goes down, you are required to go through with the purchase.
If you are the highest bidder and you don’t go through with the purchase, you can be fined and you are likely to lose your deposit.
If the reserve price isn’t met, the highest bidder has first dibs on negotiating with the vendor.
How to be auction-ready checklist
Which state are you in?
This should be an easy one – hopefully you know this.
Although there are rules that apply Australia-wide, the kind of auctions you’re going to get depends on the state. For example, in ACT, NSW, Tasmania and Queensland, you must register prior to the auction if you want to bid at the auction. In Victoria and WA, you can turn up on the day and you are not required to register.
Although there are rules that apply Australia-wide, the kind of auctions you’re going to get depends on the state. For example, in ACT, NSW, Tasmania and Queensland, you must register prior to the auction if you want to bid at the auction.
Find out what the full set of rules are in your state by searching online.
Are you pre-approved?
Having home-loan pre-approval is advisable for hitting up an auction. This means you know how much you can spend.
Remember, at auctions, if you are the highest bidder, you are obligated to purchase the property when you sign the unconditional contract (or there is big fines involved).
If you have pre-approval, you know you’re likely to get a loan and how much for and what you can afford to bid for.
If you’re not sure what price bracket you’re looking at, consider using our pre-qualification tool.
It will estimate how much you could borrow, your borrowing costs and your loan based on your deposit (or how much you want your deposit to be).
Have you done your auction research?
Scoping out other auctions is one of the best things you can do to prep yourself.
You’ll get a feel for the atmosphere, the things to do (and not to do) and what the market is like at the time you’re looking to buy.
It is advisable to attend auctions in the local area so you get a feel for what similar types of homes are going for, what type of bidders are going for them and what their bidding strategy is.
Do you know what your absolute maximum amount is?
This will be part of the pre-approval process but it is also an important step to prepare you for the auction.
If you know what the absolute maximum amount that you can spend is, you’re less likely to overspend.
Know this number well ahead of the auction - once you know, go bid!
Most importantly, don’t let emotion get the better of you on the day, keep a cool head and remember your spending limit.
As part of the auction process, you will get to inspect your potential new home or investment property in the weeks leading up to the auction.
You may also get to inspect it just before the auction. Look closely at the property and ask questions.
Be confident (or fake it ‘til you make it)
Body language matters and it’s an important part of your bidding strategy.
If you’re bidding confidently, other buyers may taper off their bidding.
Don’t show other buyers that you’re getting close to your limit. Showing disappointment can make other bidders more motivated. Remember, you know how much you can spend and you need to accept that you may need to walk away.
Before the auction, look up bidding strategies online so you can read through how different people have approached an auction and what worked for them.
Ready to hit up an auction?
Go through our pre-qualification tool here or if you’re ready, you can go here to start the pre-approval process. Alternatively, find a branch nearby and talk to one of our friendly staff about a home loan.