Buying at auction: 5 things to know before you bid this spring

A winning auction bid is unconditional, with no cooling-off and no finance clause. Here's how to prepare your finance, research and bidding limit before spring auctions.

Before you bid at auction, know that a winning bid is unconditional: there’s no cooling-off period and no finance clause, and the deposit, usually 10%, is due on the day. Have your finance assessed, finish your inspections and contract review beforehand, set a firm limit, and be ready to negotiate if the property passes in.

Auctions become a far more common part of the property market in spring. As listings increase and competition picks up, vendors and agents tend to use the auction method to generate urgency and maximise the number of competing buyers.

For buyers who have not purchased at auction before, or who have had limited experience with the process, spring is a good time to understand how it works. These five points matter most before you bid.

1. A successful bid is unconditional

When the hammer falls and you are the highest bidder above the reserve, you are legally bound to complete the purchase. There is no cooling-off period, no subject to finance clause and no ability to walk away without forfeiting your deposit, which is typically 10% of the purchase price and payable on the day.

This means your finance should be fully sorted before auction day, not after. A pre-approval that has not been formally assessed against the specific property is not sufficient protection if something goes wrong. If the lender’s valuation comes in below your winning bid, you’ll need to cover the gap from your own funds.

In Victoria, cooling-off rights also don’t apply to private sales made within three business days before or after a publicly advertised auction, so a pre-auction offer carries the same commitment.

2. Do your due diligence before auction day, not after

Because there is no cooling-off period after a successful auction bid, all your research needs to be completed beforehand. That means:

• arranging a building and pest inspection
• reviewing the contract of sale with a conveyancer
• checking the strata report, if applicable
• understanding any issues with the title or the property itself

Buyers who skip these steps hoping to sort them out after the auction can find themselves committed to a purchase they would not have made with the full information. Our guide to understanding property inspections explains what a building and pest report covers.

3. Know your limit and decide it before you arrive

The auction environment is designed to create competition and momentum. Bidding can move quickly, and it is easy to get caught up in the heat of the moment and exceed what you intended to spend.

Setting a firm maximum before you arrive, and committing to it, is one of the most important things a buyer can do. That number should reflect what you can borrow and what you are comfortable committing to given the property, the location and your financial position.

Work your limit back from your total budget: the deposit, stamp duty, legal costs and a buffer for any shortfall between your bid and the lender’s valuation. If someone else is bidding for you, give them the number in writing.

4. Understand what happens if the property passes in

If bidding does not reach the vendor’s reserve price, the property passes in. In most cases, the highest bidder at that point is given the first right to negotiate with the vendor after the auction concludes.

This can work in a buyer’s favour, as the negotiation typically happens quickly and without the pressure of competing bids. Being prepared to negotiate immediately after a passed-in result can be just as important as being ready to bid on the day.

Know before the auction what you’d offer if it passes in and what conditions, if any, you’d ask for. Check with your conveyancer how a post-auction sale is treated in your state.

5. Attend a few auctions before you bid at one

If you have not bid at auction before, attending a few as an observer before spring gets underway is useful. Watching how auctioneers run the process, how bidding momentum builds, and how other buyers behave takes some of the unfamiliarity out of the experience.

Once you’ve won, the period to settlement has its own risks, covered in what can go wrong between offer and settlement. Spring brings plenty of auctions to observe across most capital cities and many regional markets, and the time spent watching is rarely wasted. For more on strategy, read how first-time buyers can buy at auction.

Get your finance ready before auction season

Having your finance formally assessed and pre-approved before the auction season starts is one of the most useful steps you can take. Our spring buyer’s checklist covers pre-approval, credit checks and upfront costs, and the steps before making a property offer apply whether you’re bidding or negotiating.

A mortgage broker can help you compare your options, organise home loan pre-approval and, for first home buyers, check eligibility for first home buyer schemes before auction day. Attain Loans is a mortgage broker in Melbourne’s west that helps buyers prepare finance for auction, subject to each lender’s assessment.

This article is general information only and doesn’t take into account your objectives, financial situation or needs. Consider whether it’s appropriate for you and speak with a licensed professional, including a conveyancer or solicitor, before making a decision.

Further questions

This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.