Buying property at an auction
An auction is a public property sale run by an real estate agent acting as an auctioneer. Learn how to prepare, register to bid, and understand the auction process and rules.
Buying property at auction is very different to other property purchases. The bidding process is public. If the hammer falls and you are the highest bidder, you must sign the contract right there and then. This means you must be sure you are bidding on a property that you can buy.
We’ve put together this buying at auction guide to things you need to know before you start bidding.
How an auction works
Registering to bid
To take part or bid at an auction, potential buyers must register with the vendor’s agent and be given a bidder’s number.
Bidding
The auctioneer oversees the bidding process. They take bids from potential buyers and keep track of the current bid price.
Meeting (or exceeding) the reserve price
Before auctioning a property, the seller will nominate a reserve price, which is usually not advertised or disclosed.
Sold at the fall of the hammer
If the bidding continues beyond the reserve price, the property is sold at the fall of the hammer.
Signing the contract and paying deposit
If you are the successful bidder, you must sign the contract of sale and pay the deposit on the spot (usually 10% of the purchase price).
The difference between an auction and private sale
Auctions differ from private sales as there is no cooling-off period:
- after the seller and buyer exchange contracts
- if contracts are exchanged on the same day as the auction after the property has been passed in.
If you are bidding at an auction, you must be ready to exchange contracts and complete the sale. Otherwise, you will lose your deposit and may be liable for any damages suffered by the vendor.
Registering to bid at an auction
To bid at an auction of residential and rural property in NSW you must give the selling agent your name and address and show proof of your identity. If you do not provide these details, you will not be able to bid.
Your details will be recorded by the agent in the bidders record and at the auction you will be given a bidder’s number.
Registering for an auction does not mean you must bid. Registering simply gives you the right to bid.
Who needs to register
If you are bidding to buy the property jointly with another person, for example, a spouse or partner, only one of you needs to register.
You need to register if you are bidding for another person or a company. You must show the agent a letter of authority from them, authorising you to bid on their behalf. This also applies if you are bidding on behalf of someone on the telephone.
Letter of authority to bid for another person
If you are bidding for another person, the letter of authority must include their:
- name
- address
- proof of identity number (for example, their driver’s licence number).
Letter of authority to bid for a company
If you are bidding for a company, the letter of authority must be on the company letterhead. The ABN will be recorded in the bidders record as the company’s proof of identity.
Proof of identity
To register, you must present a card or document issued by a government or a financial institution, which shows your name and address. For example:
- driver’s licence or NSW photo card
- vehicle registration paper
- council rates notice.
If you do not have this kind of proof of identity, you can use 2 documents that together show your name and address.
One document must show your name and be issued by a government or financial institution, for example:
- passport
- Medicare card
- ATM/EFTPOS card
- credit card or store card
- birth certificate
- citizenship papers.
The other document must show your address, for example:
- utilities bill (for example: gas, electricity, telephone)
- real estate rental agreement
- statutory declaration stating your address.
Certified copies of documents are not acceptable as proof of identity.
You can produce proof of identity documents electronically if the agent consents. However, producing documents via an audio-visual link, such as holding up documents during an online video chat is not permitted.
When to register
You can register with the selling agent at any time before the auction, such as when you inspect the property, or on the day itself.
If you pre-register, you will still need to show the agent your proof of identity on auction day. The agent will then give you your bidder's number.
The bidder’s record and bidder’s number
The agent will write your name, address and the number of your proof of identity in the bidder's record. If you are bidding for someone else or a company, they will record their name, address and proof of identity details. The agent will then give you your bidder’s number, which you must display when you bid. Return your bidder’s number to the agent after the auction.
The bidder's record and your privacy
The agent is not permitted to show the bidders record to anyone, including the property owner. Only an authorised person from NSW Fair Trading is permitted to see the bidder’s record.
The agent must store the bidder’s record securely and cannot use it for any purpose.
Pre-auction offers
Sometimes the vendor agrees to consider pre-auction offers. You can make a pre-auction bid through an agent before the auction. The negotiation process is the same as buying by private sale.
Preparing for an auction
Before you bid at an auction, consider the following:
Know the market
When you have decided on the type of property you want, and what areas you are looking in, inspect as many similar properties as you can. Look at recent sales of similar properties. Go to auctions for similar properties. There are many upfront costs for preparing for an auction (e.g. building report, strata report, pest inspection report). Research will help you better anticipate a property’s likely sale price. This will help you avoid investing money upfront in checking a property’s condition if that property is likely to sell for a price outside of your range.
Understand the different kinds of property you can buy
Understand the differences between owning a house and owning a property in a strata or community scheme. Each has different ongoing costs and obligations.
Be ready to go ahead with a purchase and know what you can afford
If you are the highest bidder, you must sign the contract, and there is no cooling-off period. If you cannot complete the contract, you will lose your deposit. Before you bid at an auction, ensure you:
- confirm with your lender the maximum amount you can borrow, including stamp duty costs, and have the necessary approvals in place
- inspect the property and know the property’s condition. This includes:
- obtaining professional building inspection and pest reports
- reviewing any strata reports (if the property is in a strata scheme).
- reviewing the contract with your solicitor or licensed conveyancer and be comfortable with its terms.
Make sure the property is what you want
Be sure that the property meets your needs. Consider:
- if it is close to the amenities you need
- any need for repair work
- noise levels
- if there is enough space.
Read more about buying a property to help inform your decisions.
Be aware of land tax considerations
If you are buying a property at auction, be aware of any land tax implications after the sale. Land tax is an annual tax that applies to landowners who own properties with a taxable value above the NSW Government’s threshold.
If the property you are buying has outstanding land tax liabilities from the seller, these may need to be paid as part of the settlement process.
Before the auction, check if the property has any land tax charges. You can request a clearance certificate from the seller before finalising the sale. This will confirm if there are outstanding land tax liabilities on the property.
For more information about land tax, see Revenue NSW – Land Tax.
Auction terms you should know
Learn some common auction terms.
Before the auction, the vendor (seller) will set a minimum price with the auctioneer (reserve price). If the reserve price is not reached during bidding, the auctioneer will privately ask the vendor if they will sell at a lower price.
If bids do not meet the vendor’s reserve price, the auctioneer will seek more bids. If bids still do not meet the reserve price, the property may be 'passed in' or withdrawn from auction. The highest bidder then generally has the first opportunity to negotiate with the seller.
Towards the end of the auction, the auctioneer will call for any final bids. Once there are no more bids, the auctioneer will count down the ‘fall of the hammer’, which signals the end of the auction. No bids can be made after the fall of the hammer, and the highest bidder is legally obliged to sign and exchange contracts.
The day of the auction
On the day of the auction, the property may be open for inspection. Use this opportunity to take a final look at the property, the contract and auction rules.
Agents must give all potential bidders a copy of the bidder's guide before the auction.
Auction conditions
Auctions are conducted under certain conditions set by law.
The auctioneer must have these conditions on display before and during the auction so that you can read them.
The auction conditions include:
- the vendors reserve price must be given in writing to the auctioneer before the auction commences
- the highest bidder is the purchaser, subject to any reserve price
- the auctioneer is entitled to make one bid only on behalf of the seller
- before the auction, the auctioneer must announce that the auctioneer is permitted to make one bid on behalf of the seller
- the auctioneer must announce immediately before, or while making the bid, that they are making a vendor bid
- the auctioneer can refuse a bid that is not in the interests of the seller
- the auctioneer has no authority to accept a late bid - that is, a bid after the fall of the hammer
- if there is a disputed bid, the auctioneer is the sole arbitrator and makes the final decision
- the successful buyer’s name must be given to the auctioneer as soon as possible.
Auctions may be conducted by any means, for example in person or electronically.
Arriving at the auction late
If you arrive after the auction has started and wish to bid, you will need to find the agent to register or present your proof of identity if you have pre-registered.
If you need to make a bid immediately, hold up your hand to let the auctioneer know you are going to make a bid after you have registered.
As soon as you have a bidder’s number, the auctioneer can accept your bids.
Co-owners and executors
A co-owner, executor or administrator or someone bidding on their behalf, may make more than one bid to purchase the property as long as:
- this is outlined in the auction conditions
- the auctioneer has announced this before the start of bidding at the auction
- the auctioneer announces before the start of the auction, the bidder registration number of any co-owner, executor, administrator, or someone bidding on their behalf.
Dummy bidding and collusion
It is illegal to make dummy bids at an auction.
The seller of the property is entitled to have one bid made on their behalf by the auctioneer. When the seller’s bid is made the auctioneer must announce it as a vendor bid.
Successful bids
If you are the successful bidder, you must sign the sale contract and pay a deposit on the spot. The deposit is usually 10 per cent of the purchase price. There is no cooling-off period when you buy at auction.
After the exchange of contracts, your solicitor or conveyancer will carry out various searches on the property.
Your solicitor and the seller’s legal representative will then arrange for settlement. Settlement is when you must pay the balance of the purchase price.