Many homeowners in Queensland choose to sell their homes by auction. There are several advantages to both sellers and buyers by selling at auction.
But there are also differences in the procedures of sale when a home is sold at auction instead of on the market.
New laws in Queensland implemented in 2014 have tried to correct problems associated with buying a home by auction by making the process more transparent.
Buyers should use common sense, research an area thoroughly before making an offer and be familiar with the rules that govern buying property at auction.
Buyers and sellers should also be aware that the regulations governing selling property at auction are set by each state or territory. If you are buying a home in another state, the procedures may be different.
Do Your Homework
Many of the conditions that apply to buying a property privately or off the plan do not apply when a home is sold at auction.
Prospective buyers must make sure that the property is in good condition, that they have financing approval and that the terms of the contract are satisfactory.
There is no cooling-off period when a home is purchased at auction.
The successful bidder must sign a contract immediately. There is no time provided after the sale for inspection, for approval of financing or for legal evaluation of the contract.
Research the property values of a neighbourhood to get an idea of the value of the property being sold. Sellers or their agents do not provide a price range for a residential property sold at auction because no one knows how high the bidding will go.
The property may show up on the internet in association with a search by price range, but this is only for the purpose of displaying comparative information on the web. The website should explain that this is not a price guide.
Inspect the Property before the Auction
Inspect the property before the auction, preferably several times at different times of day. Many buyers obtain independent building and pest inspections prior to auction day.
If a swimming pool is on the property, buyers can also have a pool inspection. Inspections will identify defects or problems present at the time of inspection, provide recommendations about how to remedy the defects and how much these repairs will cost.
Review the Sales Contract
Ask for a copy of the contract before auction day and have a qualified solicitor review it. The prospective buyer can change conditions of the contract.
These changes can be negotiated with the estate agent before the sale. Buyers should give the revised contract to the auctioneer and state that bidding is on the terms of this revised contract.
Do a title search to verify ownership of the property. A title search will also detail any registered interests on the property such as mortgages, easements, water allocation or leases.
Ask a lawyer to examine the title if there are any questions about ownership, restrictions or interests.
Prepare Your Finance
Make sure that funding is in place. The highest bidder must purchase the property regardless of whether funds are available. Usually a deposit is required as part of the sales transaction. Bidders must come prepared to pay the deposit at the end of the auction.
The Day of The Auction
Bidders must be registered to bid. The auctioneer will give each bidder a number or often on a paddle. Bidders should ask the auctioneer if any changes have been made to the contract.
Bidders may also ask questions about the property to the auctioneer before the auction starts.
Auctioneers are required to state the conditions of sale including the amount of deposit, details about inspection or other information.
If changes have been made to the contract, the auctioneer is required to announce these before bidding begins. The auctioneer may provide a comparative market analysis to bidders if the seller approves.
The Reserve Price
A seller can set a reserve price, or the minimum amount the owner will accept. This price must be written and given to the agent before the auction begins.
Sellers do not have to set a reserve price, but often they choose to do so. The auctioneer may state that the owner has set a reserve price, but the reserve price cannot be disclosed.
In Queensland, auctioneers are allowed to bid on behalf of the seller or the seller’s representative before the reserve price is reached. The auctioneer must announce that a vendor bid is being made.
This tells bidders that a reserve price was set by the owner and that it has not been reached. Vendor bids are not allowed after the reserve price is reached.
When the reserve price is reached during bidding, the auctioneer may state that the reserve price has been reached. At that point, the property is on the market.
The auctioneer does not have to announce when the house is on the market, but if he does, it must be truthful.
After the house is on the market, a sale must be made. The highest bidder must sign the contract.
False bids, also called dummy bids, are illegal in Queensland. Dummy bids are ploys to raise the bidding by someone who does not plan to purchase the property. Any bid made must be from a registered bidder or the vendor.
Reserve Price Not Met?
If the reserve price is not reached during the auction, the owner may choose to accept a lower price or pass in the property. If the property is passed in, it can be sold by private treaty.
The house is then considered to be on the market, and bidders can negotiate a sale with the owner. If a sale is made within two days of the auction, there will not be a cooling-off period for the buyer.
If the sale is made more than two days after the auction, a cooling-off period is allowed.
Buyers can make an offer on a property before the date of the auction. Pre-auction offers may come from a number of prospective buyers.
If several buyers make offers, the owner can select the most advantageous one. A serious buyer can strengthen a pre-auction offer by having financing in place, including a deposit, waiving some of the terms such as the cooling-off period, signing the contract or putting an offer in writing.
Buyers making pre-auction offers will not know how many other offers have been made or their terms.