Date: 21st Jul 2020
So, you’ve saved up, found a house you like, and learnt it’s going to auction. But you’re not quite sure what to expect. If you're interested in purchasing a home at auction, this guide provides comprehensive information on the whole process.
Keep reading to find out everything you need to know!
Auctions are one of the most common ways of buying property in New Zealand. Live auctions are held by licensed auctioneers either at the property for sale, at an auction house or online. Auctions provide prospective buyers with the opportunity to submit their bids in real-time and engage in public negotiations for the price of a house.
It is a fast-paced process where the highest bidder wins and must pay a 10% deposit at the auction. Auctions ensure that sellers receive the best possible price and help buyers know they are getting the property at its true market value.
Buying property at auction in New Zealand requires careful planning and preparation. Auctions are usually unconditional, meaning that once you have won, you will have to go through with the offer. Look into the value of the property, conduct a title search, and get a property inspection report. Of course, don't forget to view the property prior to the auction date as well.
If you want to buy a home at auction or make an offer before the set auction date, you must be prepared to make an unconditional offer according to the terms and conditions. You must also be prepared to pay a deposit immediately (usually 10% of the purchase price) following the auction.
Let the property salesperson know you are interested in bidding for the house at auction. They will provide you with a pre-auction pack containing various legal documents, including the auction conditions and the sale and purchase agreement. This includes information on the purchase deposit and the settlement date.
Ensure you understand the sale conditions, arrange finances with your mortgage broker or bank, and register your interest.
On auction day, the auctioneer will reiterate the auction conditions specific to that property before the auction starts. Then, they will call for an opening bid. You will start bidding according to your strategy, whether that involves entering early to show commitment or waiting until later to avoid a bidding war.
After the opening bid is put forward by a prospective buyer, the auctioneer will declare the increments by which the price can be raised for the next bidder. For example, if the opening bid is $600,000, the auctioneer might state that all following bids must be $20,000 higher than the last. The next bid will, therefore, be $620,000.
This ensures the auction moves efficiently, encourages competitive bidding and prevents disruptions. The auctioneer may change the increment price as the auction progresses, usually reducing it to encourage continued participation.
When you’re ready to bid, raise your hand, clearly call out your bid, or nod your head to the auctioneer.
Once bidding reaches the reserve price, the property will be sold to the buyer with the highest bid once bidding has stopped.
If you are a successful bidder, you are legally bound to buy the property.
The reserve price is the minimum price that the seller is willing to accept for the property. You will not find out the reserve price at auction until it has been met. Once bidding reaches the reserve price, the auctioneer will announce that the property is “on the market.” If the reserve price is not met, the property will not be sold at auction.
However, the highest bidder may privately negotiate with the seller.
If you are the winning bidder, you must pay the 10% deposit and sign the sale and purchase agreement immediately after the auction. These documents will outline the settlement date, which is typically 20 working days from the auction date.
Your lawyer will work with the bank or lender to arrange the release of funds.
On settlement day, you will pay the remaining amount and officially gain possession of the house.
In most cases, you can put an offer on a house prior to the auction.
If your offer is acceptable to the client, all other registered buyers will be contacted, and the auction will be brought forward in accordance with Tremain Real Estate (2012) Limited's Procedure for Pre-Auction Offers. Simply submit your offer in writing on the Auction Particulars & Conditions of Sale (ask your Tremains salesperson for a copy), accompanied by a 10% deposit cheque and with the following special clause added:
The offer shall remain open for acceptance by the vendor and may not be withdrawn by the customer until 6.00 pm on the second working day after the offer has been first presented to the client.
Before making a pre-auction offer, you must have read, understood, and signed the Procedure for Pre-Auction Offers. The pre-auction offer conditions will be given to you by the Tremains salesperson. Your salesperson will also be able to assist you with your written offer should you wish to submit it before auction day.
Although the auction terms may differ slightly depending on the type of property or auction, e.g. an onsite auction vs an online auction, the legal requirements of the auction process remain the same. These include:
Tremains are experts in helping people purchase property across New Zealand. For assistance in buying at auction, find your nearest real estate agent's office, including Hawke's Bay locations in Central Hawke’s Bay, Hastings and Havelock North. Or, check out our upcoming property auctions.