Minimising the stress of an auction
Q: I’m nervous about doing the wrong thing at an auction. Do you have any advice?
A: We’ve all seen a comedy sketch where a hapless character ends up inadvertently buying something at auction because they scratch their nose at the wrong time.
Luckily, it’s not so easy to buy a house by accident at an auction in real life but there are a number of things to be aware of.
Auctions can be exciting, fastpaced and stressful – it’s easy to feel overwhelmed. If you can, go along to one as an observer to see how the process works before you actually want to buy.
Remember that the auctioneer is working for the seller and they want to get the highest price possible for the property. If you’re planning to bid at an auction, you need to be prepared.
A successful bid means you are immediately committed to buy the property; you cannot seek legal advice or arrange finance or even get the property valued or inspected. That means you need to do all your due diligence in advance of auction day.
Before the auction (usually after you’ve viewed the property), the real estate agent working for the seller should provide you with a copy of the terms and contract of sale, which sets out what chattels will be included with the property.
This document will also tell you the amount of the deposit to be paid by the successful bidder, and when the balance of the payment must be made.
You should consider having the building checked by a property inspector and obtain a Land Information Memorandum (LIM) from the local council.
It’s a good idea to get a valuation, especially as you are likely to require one if you need a loan. Some websites provide free estimated market values.
At an auction, the auctioneer will read the terms and conditions of the sale aloud and announce if a reserve price has been set.
They must also state whether the seller has reserved the right to bid during the auction.
This is called ‘‘vendor bidding’’ and it is allowed only under strict circumstances, such as when the property being auctioned has a reserve price; when the reserve price has not yet been met; and the auctioneer has made it clear that the bid being made is a vendor bid.
They must say ‘‘this is a vendor bid’’ rather than use any jargon.
Auctioneers sometimes use vendor bids as a way to start off the bidding, or to move the bidding towards the reserve price.
Vendor bids can be made by the auctioneer, or another person working on behalf of the seller, such as a real estate agent. An auctioneer can also use a preauction offer to start the bidding.
The auction continues until there is only one bidder left.
At that stage, if the reserve price is reached or beaten, the highest bidder will be the successful buyer.
If the reserve price isn’t reached, the seller can tell the auctioneer to stop the auction without selling the property.
If the auction is stopped without a sale, the highest bidder may have
"Vendor bidding" is allowed only under strict circumstances.
the opportunity to negotiate with the seller (via their agent) after the auction. If this happens, the terms and conditions of the auction no longer apply and you can negotiate new ones.
In a nutshell, bidding on a property at auction requires good preparation and a steady nerve. Get the first one right and the second will be a lot easier.
Kevin Lampen-Smith is the chief executive of the Real Estate Agents Authority (REAA), the independent government agency that regulates the New Zealand real estate industry. If you have a question about buying or selling property, send it to susan.edmunds@fairfaxmedia.co.nz. For independent advice on buying or selling property, check out www.reaa.govt.nz.