What everyone should know about buying a house at auction (part 2)

by Chris Lang on July 27, 2012

House Auction sign

As promised, more about buying a house at auction. If you’ve missed the first part, read it here.

During the auction

Here are the terms you must know to understand what’s going on during the auction.

Reserve price – the vendor has set a minimal price that he would be willing to sell for. The auctioneer doesn’t reveal this price so nobody knows what it is.

House on the market – when the bidding starts, the first bids can be below the reserve price and as they go higher, when a bid exceeds the reserve, auctioneer announces that the house is “on the market”. It means that from that moment and on the highest bidder gets the house. If the bids don’t reach the reserve – the house won’t sell, it will pass in.

Property passed in – if no one placed any bids or all of bids were below the reserve – the property will pass in. The auction has failed, the house wasn’t sold. This is the moment when the bargaining power is in hands of buyers – they can make offers and the highest offer will get the house. Usually the highest bidder has the right to negotiate first with the vendor. At this time the original contract of sale loses all its power and you can negotiate your own terms.

Vendor bid – if there is not enough interest (meaning dead silence, no one’s bidding), the auctioneer will place a bid or two on behalf of the seller – to help bids reach the reserve price. Typically vendor bids will be just below or exactly at the reserve price.

Auction begins
Most of the auctions have the same scenario, meaning auctioneers do the same things in the same order. First, they welcome the audience; introduce themselves and the house that is being sold. Then they explain what’s in the contract of sale, conditions and Section 32. Then they describe the house and the neighborhood. After that they take questions from the audience, and finally – open the bidding.

Auctioneer is not your friend
It is important to keep in mind that the auctioneer is employed by the vendor to sell his house for the highest possible price. They will use any trick to push the bids higher. What they do best is make you believe that this next increase of $500, $1000 is going to get you the house, pushing you beyond your limit. Don’t give in, set your price before the auction starts and stick to it.

The bidding
To bid you simply raise your hand up when the auctioneer shouts a price you’re willing to pay. Make sure he acknowledges your bid by repeating it and pointing at you or describing you (something like “I am getting 350K from a gentlemen by the fence” will do).

Don’t bid before the bids reach the reserve. Remember, if there are no bids and the property passes in – you can negotiate with the vendor and in that case, the lower the last bid was – the better for you.

Another tactic you could try is wait until bidding is really slowing down (you can see it when auctioneer starts to make smaller increments of $1000 or even $500), then blow everyone away with a $10,000 bid (if the price is still within your range, of course).

Bid whatever you like – you don’t have to stick to the bids the auctioneer is shouting, any bid you feel like making, go ahead. The only condition is that it has to be approved by the auctioneer.

If you can’t make it yourself to the auction, a friend can bid on your behalf. Before the auction starts that person will need to present a letter to the auctioneer stating that he is authorized by you to make bids and sign a contract. In that case the contract should have a nominee clause, allowing the contract be transferred in your name (not you representative) before the settlement.

One more thing you should now – there are no “late bids”, meaning the property is sold at the fall of the hammer and no bids made after that will be accepted.

After the auction

The auction is over and there are only two possible outcomes – the house is sold to the highest bidder or passed in.

If the house is sold and you are the highest bidder – you will go into the house with the auctioneer, exchange the contracts with the vendor and pay a deposit. The deposit is going to be held in the estate agent’s trust until settlement and then released to the vendor.

If the house passed in, then you can approach the auctioneer/the estate agent and start negotiating with the vendor. Your bargaining position in this case is better, because the house will have to be put back on the market – and that means more fees for the vendor to pay, so he may be more flexible. Usually the highest bidder has the right to negotiate first with the vendor. At this time the original contract of sale loses its power and you can negotiate your own terms.

Note: by law you won’t have a cooling off period if the contract was signed within 3 days of the auction.

{ 1 comment… read it below or add one }

Lionel March 23, 2013 at 10:46 pm

A family member recommended me to this website. Thanks for
the details.


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