This year in Taranaki, there has been a big increase in the number and range of properties selling by auction. Last year (2020), 17% of new listings in NZ were auctions and this steadily rising. Auctions have been common practice in bigger cities like Auckland for a while now, we in Taranaki are only now catching on to the appeal of selling your home by auction while listings are low and buyers are abundant.
So, how does an auction work exactly?
A seller lists their property with a Real Estate Agent and they decide on an auction date, time and place, and a reserve price that the Seller wants to get for their property, otherwise it won’t sell. The reserve price is not disclosed unless it is not met at the auction.
Prospective buyers can look through and conduct due diligence on the property in preparation for the auction.
At the auction, buyers bid on the property and the highest bid wins the property provided their bid is over the reserve price.
The auction terms are decided before the day and include; how much the deposit is and what day takeover is.
Should I sell my property by auction?
There are benefits to selling at auction:
If you need to sell your house by a particular date, then having the choice to set the date for the auction can be useful.
Buyers are unconditional, so if a buyer wins your auction, they cannot back out of the contract.
Generally, buyers can’t negotiate with you so they will likely bid their best offer at the auction.
Buyers don’t know your reserve, so you could end up with a lot more than you were hoping for.
Although, there are also drawbacks:
You cut out buyers who might be willing to pay more but need to add conditions such as selling their existing house.
Buyers may be put off when they don’t know what price you are asking for or might not be able to make it on the day.
If your property is unique, you limit the buyers who might be interested.
There is an additional cost – as you will have to pay for the auctioneer on top of the commission.
Can I make an offer before the auction?
If the Vendor allows it, you may. These are called pre-auction offers. Most of the time, the pre-auction offers will need to be unconditional and not able to be withdrawn, meaning that if they accept your offer, you will have to go through with the purchase no matter what.
If you make a pre-auction offer, the Vendor may choose to bring the auction forward to an earlier date and use your offer as the first bid at the auction. If someone bids more than you at the auction, you can still make higher bids if you are able to.
Can I get a building or LIM report afterward if I win at the auction?
Any ‘bids’ or ‘offers’ you make at an auction are unconditional. If you would like a builder to inspect the property or make sure all renovations are consented, you will need to do this at your own expense before the auction. Even though there is no guarantee you will win the auction.
I have pre-approval from my bank, so I can bid at the auction?
Before you bid at an auction, you will need to check with your bank that your finance approval is unconditional and have your deposit ready to go (usually 10% of the purchase price) as this is payable on the day.
You will need to tell the bank that you would like to attend the auction for that specific property so they can check if they are happy to use that property as security for your loan.
You will also need to tick off any other conditions of your finance pre-approval before you can make a bid. These could include:
- Obtaining a registered valuation of the property
- Paying off credit cards or car loans
- Getting a building inspection done
- Giving the bank evidence of your deposit
- Giving the bank evidence of a gift
I’m getting out my KiwiSaver to use towards my purchase, can I bid at the auction?
You will need to contact your KiwiSaver provider before the auction to find out how much you are eligible to withdraw. It is important to note that you cannot withdraw your KiwiSaver before you have a signed contract for a property, so you cannot withdraw your KiwiSaver before the auction.
If you do not have enough cash (not including your KiwiSaver) available for the contract deposit (usually 10% of the purchase price) on the day of the auction, you should let the auctioneer know before the auction that you won’t be able to pay the deposit on the day. It will be up to the vendor if they accept this or not.
It takes up to 15 working days to withdraw your KiwiSaver, so if you do win at the auction, you will need to make sure there are at least 15 working days from the date of the auction to the settlement date (the day you get the keys).
What happens at the auction and what if I can’t be there?
The auctioneer may start the bidding with “Vendor Bids” to get the bidding up to the reserve price. The auctioneer must state that the bid is a Vendor Bid if they choose to do this. Vendors can’t get people to bid on their own property to “trick” buyers into bidding higher.
If you can’t be there, you should let the auctioneer know and you can sign a form nominating someone to bid for you at the auction and make sure your nominated person knows your limits. You can also bid over the phone.
If the bidding doesn’t meet the reserve price, the bidding is “paused” or the property is “passed in”. The Vendor can choose to disclose the reserve price and offer the highest bidder the chance to pay the reserve or by other negotiation with the Vendor. If they can’t agree, the other bidders may get a chance.
So, what should I do to get ready for the auction?
Talk to the agent and ask them questions about the property and ask them to send you the auction documents. We can check these over for you.
Let your bank know you might attend the auction and send them the auction documents. Make sure you have your deposit funds ready to go or talk to the agent about other arrangements.
Organise a builder to inspect the property prior to the auction and order a LIM report from the council to check the consents and anything else that might affect the property. Keep in mind that it takes 10 working days for the council to prepare a LIM report.
Get legal advice to check over the property and the title. We are happy to talk about anything you might need to know before the auction and help you answer any questions you have about the process.
Remember, if you aren’t successful at the auction, it wasn’t the house for you! You will now be well prepared for next time!