Whether you’re a seasoned investor or a first-time buyer, navigating property auctions can be an exciting yet challenging experience.

Fear not, as we’re here to guide you through the process so you can be better prepared for your next purchase.

Auction Glossary of terms

Before starting, it’s a good idea to get familiar with common auction terms.

Auction – A real estate auction is a public sale of a property, it is conducted by an estate agent acting as an auctioneer. Auctions in Victoria are governed by strict rules.

Boardroom auction – Boardroom auctions are similar to standard auctions. The process is conducted at the agent’s office or inside the property.

Virtual / Zoom / Online auction – They work exactly the same way as public auctions, however held online or through a zoom meeting.

Auctioneer – An agent within the agency who conducts the auction. This person can be different to the main listing agent.

Auction preamble – At the start of the auction, the auctioneer will go through the rules of the auction, declare the relevant auction schedule, and highlight the benefits and features of the property.  

Auction Schedule – These are the auction rules set by the auctioneer. The most common is schedule 1 in Victoria.
If a different auction schedule is announced, then the owner or co-owners of the property are allowed to bid for the property. You should understand the differences between each schedule. You can find out more here. 

Vendor – A vendor is the name given to the seller of the property. They are the current owners of the property. 

Vendor bid – A vendor bid is a bid made by the auctioneer on behalf of the vendor. It’s not an actual bid for the property; rather, it’s a statement to the public that the seller (vendor) is not happy with the amount of the last bid. These vendor bids are used to help start or accelerate the bidding process.

Reserve price – Before the auction, the vendor will need to nominate a reserve price. This is the minimum amount the owner will sell the property for during the auction. If bidding reaches this level, then the owner will have to sell the property to the highest bidder.
If bidding doesn’t reach the reserve price, then the reserve price can change and adjust higher. 

Passed in – If no bid matches or exceeds the vendor’s reserve price, the property is ‘passed in’. The property can pass in in two ways. The first way if there is a higher bidder, then the higher bidder will have the exclusive right to negotiate with the vendor. This is usually a short period of time – usually 5-30 minutes.
If there are no bids on the property, the property passes in and the sale switches over to a private sale.
It’s important to note that no cooling off provisions still apply 3 business days after an auction. 

Half-time-break – This could happen midway through the auction. If bidding doesn’t reach the reserve price, the auctioneer and agents will have a short 5 minute meeting with the vendor to discuss the auction. If it appears the property is likely going to pass in, then the reserve price could adjust higher allowing for a buffer for future negotiation.
If there are a few bidders and bidding has stalled close to the reserve price, the reserve could adjust lower in order to increase competitive bidding if the property is called on the market.

On the market / unreserved – Where bidding reaches the owner’s reserve price, the auctioneer will declare to the public that the property is ‘on the market’, or use the phrases ‘we are selling’ or ‘we are unreserved and selling’. In this situation, the bidder with the highest bid will secure the property.

Knocked-down – The agent will call the property three times ‘selling, selling,sold’ or ‘going once, twice, and third and final time’ This is the last opportunity to bid for the property.
Once the auctioneer hits the hammer on the contract then the property is sold. The auctioneer can’t accept late bids.

Registration – In Victoria, there are no requirements for bidders to register for public auctions. However, there may be a requirement to register for online or boardroom auctions. 

Listing Agent – The real estate agent who helps list, market and sell the property.  

Cooling off – This means cancelling the contract to buy the property, you’ll have to forfeit 0.25% of the purchase price if you choose to do so (unless another amount is agreed to beforehand).
3 days before, and 3 days after an auction in Victoria, no cooling off provisions applies.
This means you can’t cancel the contract. You are obliged to purchase the property. If you choose to still cancel the contract, then you forfeit your deposit and other legal penalties could also apply.

Unconditional – In a public auction, bidders must be participating in the auction knowing that the contract is not subject to any further conditions if bidding reaches the reserve price.
So bidders cannot add any special conditions to the contract of sale – such as the contract being subject to a building inspection or subject to finance.

Deposit – An initial deposit is a paid portion of the purchase price. This amount is usually 10% of the final price of the property. Smaller deposits may be arranged prior to the auction.

Dummy bid – A dummy bid is either a fake bid made up by the auctioneer or a bid accepted by the auctioneer from a non-genuine bidder in the crowd, usually to influence the sale price.
Fake bids are not allowed and is illegal in Victoria.

Settlement – The date in which the buyer pays the balance of the purchase price to the seller. Once this is done, the buyer becomes the registered owner of the property. 

Settlement Period – The settlement period is usually 30,60 or sometimes 90 to 120 days from the date of sale. 

So what exactly is an auction?

In a property auction, prospective buyers gather to bid on a property, each competing against each other to purchase the property at a fixed date and time.

An auction is conducted by an auctioneer. The auctioneer will commence the auction, and each party will have the opportunity to bid for the property.

If bidding reaches the reserve price, or beyond the reserve price, the property is then sold to the highest bidder. 

If the bidding doesn’t reach the reserve price, the property is then ‘passed-in’. The property can pass in in two ways:

First – to the highest bidder.

If the property is passed in to the highest bidder, the highest bidder will have the opportunity to negotiate with the vendor 

Second – on a vendor bid or no bids. If this is the case, the property will switch over to a private sale.

What should you do before an auction?

Preparation is essential before an auction. Here are some steps you should take before the auction to be better prepared to avoid mistakes.

You should then notify your bank that you’re intending on purchasing a property at auction and to raise your transfer limit for the purposes of the auction.

1. Due Diligence

Due diligence is the process of assessing the property to determine its benefits, flaws, risks and advantages. 

This process will give you a full picture understanding of the property and help inform you what you should reasonably pay for the property.

It’s essential to have this process either done by a professional buyer’s agent or to learn the steps and skills to carry this out yourself.

The dangers of not carrying out the full due diligence process on a property increases the chances of you paying more for the property than you need to or potentially making a costly mistake.

2. Contract Review

This is one of the steps in the due diligence process. The contract should be reviewed by your chosen conveyancer or lawyer.

3. Building Inspection

This is the final step in the due diligence process. Your builder should check and validate the structure of the property. 

4. Setting a maximum price

Setting a maximum price is essential before the auction. To help you make your decision, you should look at your due diligence findings and what the market value of the property is.

You should then look at the frequency of another similar type of property coming up in the future.

Then you should look at your budget and how the property fits your requirements to help you determine the maximum amount you should pay for the property.

Without setting a clear maximum limit, you risk over-stretching and paying more for the property than you need to.

5. Finances

It’s essential to get pre-approval before an auction and ensure your pre-approval hasn’t lapsed. 

You should check your deposit is ready in your account. Double check with the real estate agent to see if they would be happy with an electronic transfer on the day instead of cheque payment.

6. Strategy

If the property is scheduled to go to auction, you should prepare a strategy on how you should approach the auction.

There are two different strategies we use when purchasing a property at auction. We either take an assertive approach or a conservative approach when bidding.

The strategy and approach you decide to take can change depending on the variables on the day of the auction.

If you need support in this situation, then scroll towards the bottom of the page to see what options you have.

What should you do during an auction?

The property is open 30 minutes before. If you’d like to have another look then that’s fine to do. 

Position yourself so you can clearly hear the auctioneer and not get confused if you mishear the bids, and to also clearly see your competition so you know who you’re competing against.

It’s a great idea to have a family member or friend come with you at the auction. Their role is to record the bids. This will help you with your bidding.

Make your bids clear if you’re intending on bidding. 

Have your strategy ready be prepared to walk away from your maximum limit if the price isn’t right for you.

A few different situations can unfold – and you’ll need to be prepared whichever situation you encounter.

1. Bidding reaches the owners reserve price, and the property is put onto the ‘market’.
   
2. The property is ‘passed in’ to the highest bidder. A negotiation will take place inside the property.
   
3. The property ‘passes in’ on a vendor bid with no other bidders. The property switches over to a private sale.

Whichever situation you encounter, it’s best to be prepared and know what to do so you can approach each situation correctly.

What should you avoid doing at an auction:

• Avoid discussing the property during the open for inspection or outside the property. If you need to discuss this, ensure that nobody is around you.
  
• Reconsider your maximum limit. If you went through the exercise of a working out your maximum limit you should avoid changing your limit as this could cause you to overstretch and overpay for the property.
  
• Avoid getting into a bidding rhythm and sequence. This could cause the price to escalate quickly.
  
• Avoid bidding in $500 or $1000 increments. This can drag out the auction process unnessasrily and cause you to pay more for the property.
  
• Geting emotional about the process. Your sole purpose at an auction is to either observe or secure the property. If you miss out, then that’s okay. You’ve given it your best shot and there isn’t anything else you can do.
  
• Get into an ‘ego-battle’ bidding war with another bidder. Be confident without being cocky. The last situation you’d want to happen is for the price to escalate just for the person to purchase to secure the property for the sake of winning.
  
• Avoid bidding to the last second. We’ve seen situations where buyers would wait to bid until the very last second only for the property to be knocked down to another bidder. The auctioneer can’t accept late bids. 

What should you do when a property passes in?

If a property passes in and you’re the highest bidder, you’ll be welcomed inside the property.

The agent will disclose the vendors reserve price to you.

You will have the opportunity to then exclusively negotiate with the agent during this time. Usually for a period of 5-30 minutes.

If an outcome isn’t reached, then the agent has the right to disclose the owners reserve price to other potential interested parties.

If other parties are showing interest once the exclusive period is over, then bidding for the property could potentially re-start again.

Most buyers don’t have the negotiation skills to correctly approach these type of situations. It’s essential to build your skills or get professional help from a buyer’s agent to help you save money in these situations.

What should you do when you’re successful at auction?

If your successful in purchasing the property, you will be invited inside.

The agent will walk you through the process of signining contracts. In most cases this is done electronically.

Ensure that all the price and settlement terms are correct.

Once contracts are signed, you should notify your conveyancer and lending manager that you’ve been successful.

Let the agent know to immediately send you a copy of the contract for your records.

You should also follow up the agent the following week to receive the trust account receipt to ensure the deposit has been paid in the right account.

Where should you go for expert support:

Anyone can attend and purchase a property at auction. However, to purchase the right property, without making any mistakes, for a great price requires great skill.

If you would like to learn the skills to confidently purchase your next property, then check-out our property-buying program below.

The Property Skills Program

Or if you don’t have the time and have the budget, you should consider using a buyer’s agent to help represent you on your next purchase.

Property Skills Advocacy Services

All the best with your upcoming purchase!