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Understanding Auctions

- Wednesday, December 17, 2014
Auctions – What You Need To Know Before Auction Day

Auctions can trigger a range of emotions in the best of us: from pre-auction anxiety to exhilaration once the bidding is underway; elation if you happen to be the successful bidder and disappointment if you're among those who miss out.

Understanding the auction process and language used by auctioneers can help you navigate through the sea of emotions you may experience on auction day.

How do auctions work?

While there are rules governing the way auctions must be run, auctioneers are allowed a certain amount of creativity within those rules when it comes to how they conduct the auction.

In order to achieve the highest possible price for the seller, the auctioneer aims to get as many people as possible to compete with bids. While the auctioneer sets the amount by which the bid increases (known as rises or bidding advances), bidders can nominate a higher or lower bid which may either be accepted or rejected by the auctioneer.

The auctioneer may pause the auction if the bidding dwindles and say they are 'going inside' or ‘seeking advice or instructions’ from the seller. During this break they will discuss the progress of the auction with the seller.

What is a vendor bid?

During the auction, the auctioneer may declare a vendor bid. This indicates that the seller is unsatisfied with the price reached by that point in the auction.

Before the auction, the seller would have nominated a reserve price – the figure at which they have agreed to sell their property. If the bidding has reached (or is close to reaching) the reserve price, the auctioneer will confirm with the seller that they are prepared to sell at the highest bid.

At this point, if the seller agrees to sell at the highest bid, the auctioneer will declare that the property is ‘on the market’ which means bidding will continue until the property is sold to the highest bidder.

What if the property ‘passes in’?

If the auctioneer doesn’t reach the sellers reserve price, the property will probably be ‘passed in’. The highest bidder is then given the first right to negotiate with the seller with the aim of achieving the sale.

Unlike purchasing a property privately, buying a house at auction means you forfeit your right to a cooling-off period and the contract cannot be subject to any conditions. For this reason it is important to have any building or pest inspections done before the auction.

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