Terms to know before the auction hammer falls

How does an auction work?

While there are rules about how an auction must be run, each auctioneer has a different way of doing things.

The auctioneer's goal is to encourage as many bidders as possible to compete, to achieve the highest possible price for the vendor.

One of the tools in the auctioneer's arsenal is tempo control, and the most common way they use this is by announcing the amount by which bids increase – known as rises or bidding advances.

You don't have to bid at the amount stated by the auctioneer, but, if you bid less, they can choose to reject your offer.

Tips for making a winning bid

From the style of the auctioneer to the bidders you're competing against, every auction is different, which means each one requires you to chart a slightly different course to success. However, there are some general rules that apply to all auctions, and below are three of them.

Learn how to: Emotionally detach before you sell

1. Bid confidently

The number of bidders you're up against determines whether you should come out of the gate with an aggressive bid that blows your competition out the water or pull your punches until the auction nears its end. But whichever strategy you choose, you'll need to bid confidently.

This shows your competition that you mean business, which will throw them off their game and help clear your path towards a successful bid.

2. Ask questions

The more informed you are at an auction, the easier it will be for you to beat your competition.

Make sure to keep tabs on who is bidding and how much they have bid, and don't be afraid to ask the auctioneer if the property is on the market.

This advice holds good for your pre-auction preparation, too. Ask the vendor's agent lots of questions so that you can find out why the vendor is selling, how much interest has been shown in the property and which type of buyer is interested in it. This information will help you prepare the most appropriate bidding strategy.

3. Stick to your limit

Before you arrive at the auction, make sure you know what your bidding limit is. This should be based on your personal financial circumstances, as well as recent sales of comparable properties.

You should also seek pre-approval from your lender so that you know exactly how much money you have to play with. This is especially important when bidding at auction, as you aren't entitled to a cooling-off period if you change your mind.

Once you've come up with a limit, write it down on a piece of paper and keep this in your pocket during the auction; having a physical reminder will help keep your emotions in check.

What is a vendor bid?

A vendor bid is a bid made by the auctioneer on behalf of the vendor. It's not an actual bid to buy the property; rather, it's a public statement that the seller is not happy with the amount of the last bid, and is used to keep the bidding moving forward. The auctioneer must announce that they are making a vendor bid when doing so.

The auctioneer may also halt proceedings if the bidding dries up. When this happens, they'll usually say that they are 'going inside' or 'seeking advice or instructions' from the seller. They use this time to discuss the progress of the bidding with the seller.

If the bidding has reached or is close to reaching the reserve price – defined as the figure at which the vendor has previously agreed they will sell – the auctioneer will talk to the seller to find out whether they are willing to sell at the highest bid.

If they say yes, the auctioneer will publicly announce that the property is on the market. Following this announcement, bidding will continue and the property will be sold to the highest bidder.

Don't pass out if it passes in

The auctioneer will seek bids until they meet the seller's reserve. But if the bidding fails to reach the seller's target price, the property will likely be passed in. The highest bidder will then be offered the first right to negotiate with the seller, in an effort to achieve a sale.

There are important differences between buying a house at auction and by private sale.

One of the main differences is that, if you buy at auction, you don't get a cooling-off period if you change your mind – and you can't make the contract subject to any conditions.

This means that if you are planning to have a building or pest inspection – which we recommend you do – this needs to happen before the auction.

If you buy a property by private sale, however, you are able to make the contract subject to conditions.

In a private sale, a cooling-off period of three business days also applies from the date you sign the contract, unless this is within three days before or after a public auction.

FULL ARTICLE: https://www.realestate.com.au/advice/auction-hammer-falls-vendor-bid/