Auctions are an exciting way to purchase real estate, however the process requires a different approach than other methods of sale, which can be overwhelming for buyers to navigate. Below we have outlined the steps involved in making the auction process as simple and straightforward as possible:
1. Express your interest
When you have found the property you wish to purchase, let the salesperson know of your interest and intention to bid at auction. They can then notify you of any amendments to the Contract of Sale relating to Chattels, Settlement or the inclusion/deletion of Clauses. You will also be advised if the Vendor receives an acceptable offer prior to the auction.
2. Do your research
You will need to do extensive research to ensure that the property is suitable for your needs before committing to bidding at auction. Auction properties are sold on an unconditional basis, meaning there is no conditional period, and if you win, you are legally obligated to complete the purchase. As such, any and all tasks to be completed as part of your due diligence need to be done prior to auction day. This can include arranging finance and organising a building report, as well as any other specialist inspections.
You will need to enlist the help of your lawyer or conveyancer to review and approve of information relating to the property, such as the Certificate of Title and LIM Report.
3. Arrange your finances
Arrange your finances and ensure the amount for the deposit (usually 10% of the purchase price) is readily available. Due to auctions being unconditional, you will be required to pay the deposit immediately following the successful auction.
4. Know what to expect on auction day
Auctions are an open forum where all purchasers are able to compete openly and each bid is announced by the auctioneer. Attend some local property auctions as a spectator so that you can get a feel for the process and the atmosphere on auction day. This will assist in helping you feel more familiar and comfortable with the process. You can also check out our auction livestream each week at eves.co.nz/upcoming-live-auctions
5. Familiarise yourself with pre-auction offers
Pre-auction offers are offers that are made prior to auction day. A vendor may demonstrate their willingness to review a pre-auction offer by including the words ‘unless sold prior’ alongside the auction date, on the advertising material for their property.
If the vendor is happy to accept a pre-auction offer, the auction may be held on an earlier date than advertised, or it may be cancelled if a sale and purchase agreement is signed.
6. Auction day
Auctions are generally held at the auction room of the real estate company or, occasionally, on-site at the property. Most companies hold numerous auction slots on the day. Ensure that you are aware of the order of sale and what ‘Lot’ the property you wish to buy is. Get there early and, if required, register.
Before the auction starts, the auctioneer will run through the terms and conditions of the property, announce any important issues, and will also declare if they may present a vendor bid (on behalf of the seller) during the auction, and if there are any telephone bidders present.
7. Bidding at auction
Once the bidding commences, simply raise your hand or nod your head to indicate your bids and bid confidently to the figure that you are comfortable paying for the property. The auction will culminate in either a successful or unsuccessful sale. Stick to your bidding strategy and don’t exceed your maximum bid! Auctions can be competitive, so it's easy to get caught up in the heat of the moment. Stay disciplined and avoid emotional decision making.
8. Post auction
If your bid is the highest and meets or exceeds the reserve price, congratulations! You've won the property. Follow the auction's payment and closing process as outlined in the terms and conditions. This will include the signing of the contracts and payment of deposit.
Useful terms to familiarise yourself with:
Vendor bid – A vendor bid is a bid made on behalf of the vendor, while the bidding is below the reserve price. The purpose of a vendor bid is to encourage buyers to bid closer to the level of the reserve price. It is normal for the auctioneer to be authorised by the owner to bid on their behalf. Be assured that this will only be executed if needed and will only be used below the reserve. All vendor bids will be clearly identified by the auctioneer and should be viewed as a counter offer from the vendor.
Reserve – The reserve price is the minimum price the seller is willing to accept for the property. The reserve price is set close to auction day (or even on the day of) once the vendor has been able to consider market feedback. The reserve price is kept confidential. Once the reserve price has been met, the highest bid wins the auction. If the reserve is not met, the property may be passed in, or the seller may choose to negotiate with the highest bidder to achieve a higher price.
Unless sold prior – This is the disclaimer used to accompany auction details on a house for sale, if the vendor is open to reviewing pre-auction offers.
On the market – Once the bidding has reached the reserve, the property is considered ‘on the market’ as it will now be sold to the highest bidder.
Want more information about buying at auction? Check out our video!
Useful online resources:
https://www.settled.govt.nz/buying-a-home/making-an-offer/buying-by-auction/
https://wiseup.nz/buying-property/real-estate-auctions/how-do-house-auctions-work
https://www.bnz.co.nz/personal-banking/life-moments/buying-a-house-at-auction
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