On TV, auctions look simple. A fast-talking auctioneer stands in front of a property and takes bids from eager would-be buyers, before the hammer drops and it’s sold amid a flurry of waving hands and pointed fingers.
In the real world though, it’s more complicated. And it’s in the best interest of all sellers to understand the popular sale method, from marketing to reserve prices and everything else in between.
Before auction day
“The agent will run a marketing campaign, usually for four to five weeks, before the auction date”. This involves advertising and showing the property, liaising with potential buyers and providing contracts.
Then, the day before the auction, the agent and vendor talk numbers. “This is a conversation around expectations on price. The feedback received during the campaign will be an important part of this”.
The reserve price – the figure at which the auction becomes “live” – is also be agreed, as well as any potential vendor bids; a device used to encourage bidding.
“The agent will run through the process for the auction day too, so the seller is fully informed”. An auction can either be held onsite at the property or in another location, like a boardroom.
On auction day
There are strict rules about how auctions are run and rules differ from state to state.
At least 30 minutes before the auction, the agent is required to display certain documentation about the property and verbally provide set information to potential buyers.
In Victoria, the auctioneer must tell bidders:
•the auction will be run according to the auction rules
•the rules prohibit bids being accepted after the fall of the hammer
•bidders will be identified on request
•it is against the law to make a false bid, hinder another bidder or in any way intentionally disrupt an auction
•substantial fines apply to anyone who engages in illegal auction conduct
•whether or not there will be vendor bids
•any additional conditions that apply
In most states, potential buyers must a register before the auction starts to get a bidder’s number.
The auctioneer will then invite an opening bid to start the auction and then accept subsequent bids.
The auctioneer can “set the tone for increments”, but bidders are able to seek other amounts. A vendor’s bid can be used to encourage bidding from buyers.
Dummy bidding – false bidding made by a non-genuine buyer – is against the law.
Reaching reserve & going “on the market”
Once the reserve price has been reached, the property is considered to be “on the market” and is sold to the highest bidder. A 10% deposit is normally paid, with the rest due on settlement.
If the bidding doesn’t reach the reserve, the property is passed in. The highest bidder is usually given a chance to negotiate with the seller, but this is not law.