There is a lot of confusion regarding auctions, why it is different to a normal sale, what the terms mean, what conditions need to be met and just exactly what “vendor bidding” is versus “dummy bidding”, and why one is illegal and the other isn’t (guess which!), so here’s a quick overview of the laws in Queensland and what some of the lingo really means.
As a disclaimer, in Queensland, Real Estate Agents are governed by the PAMDA (property agents and motor dealers act), which is where this information comes from.
So, what is an Auction?
An Auction is a process of buying and selling goods by offering them up for bid, taking bids, and then selling the item to the winning bidder.
Essentially, A property is marketed for a number of weeks (usually 4), after which all interested parties come together to put forward offers in a public forum, overseen by the Auctioneer.
Because all bids are made publicly, and buyers can see who they are bidding against, auctions are the best way to determine fair market value. It is the fairest process for both buyers and sellers.
2. How can I buy at Auction?
If you have found a property that you meets your requirements, there are simple steps to take to ensure you will be able to buy at Auction.
1. Ensure your finance is in order. Speak to your bank or broker and find out exactly how much you can borrow. In other words, know your limit.
2. Do your research – visit other Auctions, open homes and scour the papers and internet to see what properties are selling for.
3. Build a relationship with the Lead Agent, the one who’s name is on the sign.
4. Register for phone bidding if you aren’t able to attend the auction, or register to bid on the day (in person)
5. Bid confidently, bid strongly, and don’t be intimidated by other bidders. Don’t go beyond your upper limit.
Easy!
3. What are Auction Terms?
If you decide to buy or sell a property at auction, generally the property will be offered for sale to the highest bidder.
If you buy or sell at Auction, the property will usually be offered for sale to the highest bidder. If your bid is accepted then you will be legally bound to sign an unconditional contract immediately.
As a general rule of thumb, 10% deposit will be expected upon signing with 30 days for settlement to occur. If you need a variation to these terms you simply explain it to the auctioneer or agent when registering and if the auctioneer accepts you will be allowed to bid under those terms.
What happens at the time of Auction?
There are a number of possible outcomes at an auction:
Should the bidding reach or exceed the reserve price, the property is sold to the highest bidding and the auctioneer will conclude a binding contract between the buyer and seller. The Auctioneer may sign the contract on behalf of either or both parties if instructed to do so.
If the highest bid falls just short of the reserve price the auctioneer will asks for the sellers instructions before passing the property in, this gives the vendor opportunity to accept the last bid, by “placing it on the market” so that it may be sold under the hammer. This can often encourage further bidding.
If the highest bid doesn’t reach the reserve price (and this can be a vendors bid) The property is placed on the market for sale by private treaty, at which time anyone may negotiate with the listing agent.
What happens after Auction?
If you are the highest bidder, above the reserve price, you will immediately sign the unconditional contract.
If the property was passed in (ie. Didn’t achieve the reserve price), you will have an opportunity to put in an offer, to which the vendor will be able to accept or decline depending on the conditions and price. When a property is passed in a good agent will contact all interested parties to enquire if they would like to make an offer.
Remember that when an offer is passed in at auction, this means that the vendor is expecting an offer above the price that it was passed in at.
What is dummy bidding and how is it different to vendor bidding?
Dummy Bidding is a term used to describe when a stupid person bids… no really, it is! A dummy bidder is one who bids with no intention of buying, to push the price up on behalf of the vendor. In QLD all bidders need to register, and the Auctioneer may bid on the vendors behalf, which is very different to dummy bidding.
For example, a homeowner wants to achieve $350,000 for their property, so that is their reserve price. The bidding stalls at $295,000 and there appears to be no action. So the Auctioneer acting on behalf of the vendors would vendor bid for say, $300,000. This must be declared as a vendor bid (they often say “with me at 300”). This means that the vendor is effectively “buying back” the property at $300,000.
This states very clearly that the vendor is not interested in selling below that amount. By listening to the vendor bids, you can reasonably judge where the reserve has been set, because once reserve has been met, the auctioneer can no longer bid on the vendors behalf.
What the Fair Trading Minister, Margaret Keech has to say…
“One of the requirements for all auctioneers, is to only accept bids from registered bidders who have been given a numbered card or other similar device, such as a numbered disc or baton to identify them as registered bidders,”
“However, this rule does not exclude late-coming potential buyers from bidding. If bidders arrive late, auctioneers have the option to either:
- pause the auction, register the late bidders, and continue the auction; or
- continue the auction and not recognise the late bidder.
“To assist the process, auctioneers can pre-register bidders before the auction and then allocate a bidding number before the auction commences.
“Pre-registration is especially useful for those who may be travelling long distances or bidding via telephone.
“Auctioneers should remember if vendors intend to bid, they also have to register.
“Auctioneers must identify any vendor bids, including any bids made by the auctioneer on behalf of the vendor.
“Vendor bids cannot be accepted after the reserve price has been reached, whether the bid is made by the vendor or on behalf of the vendor.
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3 responses so far ↓
1 Hyitzhak » Buying At Auction // Apr 19, 2008 at 9:15 am
[…] Original post by zoeinthecity […]
2 Chris Moran // Apr 19, 2008 at 9:17 am
Nice writing style. Looking forward to reading more from you.
Chris Moran
3 mayapearl // Apr 26, 2008 at 9:29 am
Great post! Thanks for all the useful info, keep it coming.
MayaPearl
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