The Auction process and what to expect.
Auctioning a property can be stress free. One of the main purposes for an auction is to create a dead line for both the buyers and sellers of property. An auction is used to bring a property sale to a head. Success will be dependant on the advice received both during and before the campaign.
At the Auction
Prior to the auction the vendor will have confirmed with the auctioneer as to what level to open the bidding for the property and at what price level if there is no bidding the auctioneer is able to open the bidding with a “vendor bid”. A “vendor bid” is a bid by the auctioneer on behalf of the vendor and is indicating to buyers that below this price the vendor is unlikely to consider selling the property. It’s often used to get the bidding started or keep the bidding going. Some auctioneers use vendor bids and others don’t.
The auctioneer will open the proceedings by introducing his company and saying a few words about the property and detail the terms and conditions of the auction and explain the auction process in relation to Victorian state law. Once these formalities are completed (5-15 minutes) the auctioneer will ask for offers (bids).
Scenario 1
There is strong bidding and the price is carried to a level that is above the vendors reserve price. The auctioneer may declare the property as “on the market” and keep the auction going (depending on prior arrangements made with the vendor) or the auctioneer may pause and consult with the vendor if the price is at a level that is acceptable. If acceptable the auctioneer would go back to the crowd and declare the property “on the market”. This means the property is available for unreserved sale and that if there are no further bids the buyer holding the final bid will become the successful purchaser. Hopefully the bidding continues but sometimes it does not! Once the bidding stops, the auctioneer will call the property 3 times, that is “going once , going twice , going three times” and on the fall of the hammer the property is declared as “sold”. Once this stage is achieved the purchaser is invited to sign the contract and vendor statement. The vendor would then sign the contract as well and the contracts will be exchanged (copy to the purchaser and to the vendor and deposit cheque paid). The property is then considered to be sold unconditionally (no cooling off).
Scenario 2
There is limited bidding by purchasers and the property reaches a price that is below the vendors’ reserve price. At this point the auctioneer will generally ask the crowd to wait while he consults with the vendor. The discussion at this point will be what the next step should be. Place vendors bid, declare the property as on the market because it is close to the reserve (if buyers know the property is going to be sold they might bid), pass the property in to the current bidder and negotiate with them up to a level that is acceptable. This is the point where a vendor may feel under pressure and each of these options carry a different degree of risk, depending on the circumstances. It is very important to understand the implications of any decision that is made in the heat of the moment.
Place a vendors bid: This is used to lift the price expectations but can upset the bidder and they may walk away or the bidder may bid again to keep the first right to negotiate. Placing a vendors bid may encourage someone else to bid. Be very careful with the vendor bid
Declare the property “on the market”: There maybe no other bids and the property is sold at the lower level. This may cause the auction to get going and others to bid. Your agent needs to have a good feel as to what buyers are present at the auction and the level of interest
Pass the property in: This gives the first right of refusal to the bidder to purchase the property at the vendors reserve. If the bidder offers a figure other than the reserve the vendor then has the right to negotiate with other parties. This option can sometimes be the safest option and allows the agent to deal with a genuine buyer.
If a sale can not be achieved with either of these options then the property would be put up for private sale at an agreed asking price.
Scenario 3
The auctioneer is unable to attract any bidding at all. He would place a bid at the vendors agreed “vendor bid” level and refer to the vendor for instructions. After consulting with the vendor the agent would then offer the property again and if there is no bidding may place another vendor bid and then formally pass the property in.
Scenario 3 can often occur and it is important for the vendor not to panic. If the advertising campaign has been working and buyers have been inspecting the property one will come along and want to purchase the property, however it may take time. If a property is priced correctly and there are no bids, the property will generally sell within the next 2 weeks
If a sale can not be achieved with either of these options then the property would be put up for private sale at an agreed asking price.
David McMillan at Domain Property Advocates has years of experience in the auction process and would be happy to answer any questions you may have. Contact him today on 9853 5599.
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Tags: Auction, auctioneer, few words, formalities, purchaser, Scenario, Vendor, vendor bids, victorian state
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