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Different Ways to Buy a Home - Deep Dive into Auctions & Private Treaty

By Sarah Lefebvre on Nov 10 2015
Tagged as:
  • Buying
  • Home
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Buying a home is both an exciting and nerve wracking time. Regardless of whether you are new to the property market or have purchased a home before understanding what happens on auction day and having a few tips and tricks up your sleeve can make the difference between wining or not._x000d_ _x000d_ If you are buying by private treaty you also need to know the best way to approach this to give yourself the best chance of buying your property

Different Ways to Buy a Home - Deep Dive into Auctions & Private Treaty


On the Day of the Auction

On the big day, there are several steps you need to take before getting in amongst the bidding. If you haven’t registered in the bidders record, now is the time to do so.

In New South Wales, this is generally run by the selling agent. You will be required to provide identification such as a drivers license, as well as a letter of authority if you are bidding on behalf of someone else.

Agents acting for a buyer need to provide their license number, while anyone with power of attorney can just sign up on their own.

Should you be bidding for a company, you’ll also need the organisation’s Australian Banking Number.

Remember, if you’re bidding as a couple, then only one of you needs to register.



What is Registration?

Your details and the details of the auction are recorded, and you’ll be given a bidding number. Don’t think that this registering lets you see the details of others in the record though - not even the seller gets a look at who has registered to try and buy.

These specifics are for NSW, so it’s important to check up on your local government rulings for what else you may need to do on the day.

Only registered bidders can be in the running for the property - latecomers may be able to get a late registration, but it’s best to be prepared.


Rules of Auction



Once the auction begins, there are many rules in place that you will have to be wary of, lest you find yourself bound to a deal you aren’t happy with. The auctioneer will outline all rules before the bidding begins.

This can include their obligation to refuse bids after the hammer falls, to arbitrate bid disputes, and also to refuse bids that come from those who have not registered for the auction.

There may be more specifics depending on where the auction takes place, so check the rulings and listen carefully to the auctioneer.

It is in their best interests to ensure the auction runs smoothly too, as they can be fined up to $11,000 for accepting bids from unregistered buyers in NSW. In Queensland, a similar fine can be handed out for not showing the auctioneer’s name or license.


What Type of Bidder are You?

When the bidding gets underway, you’ll find some strong auction stereotypes emerge. These are common at many auctions, and can be easily handled if you know what to expect - and you may even recognise yourself in some of these.

The high roller

These bidders tend to raise the bar early, as an intimidating factor. However, they can sell themselves short and end up paying more than they need to, or exhaust themselves early by flying too close to the sun and hitting the upper levels of their budget too soon.

The waiter

This is a ‘slow and steady’ bidder, who is unlikely to even be heard from until the closing stages. The drawback here is they enter the bidding when the level is already quite high, so may be stretching their budget with the first bid they make.

The newbie

These bidders are common, but frustrating. By laying random bids all through the auction, the newbie can be a confusing bidder that does not often succeed.

When at auction, you need to have a handle on your finances, keep a cool head and adopt traits of both the waiter and the high roller to have a good chance of victory. Luck needs to be on your side a little as well!


Understanding Auction Terms

If you are new to the auction process, you may come across several terms that confuse you, which is the last thing you want in the middle of a bidding war. Here are some common terms to be aware of.



Bidders Guide

The bidder's guide is a document that must be provided to bidders by the selling agent before an auction. It gives information on how to register for auction and what paperwork needs to be filled out, the relevant privacy laws and the rules and regulations of the auction. Make sure to get one of these before you start to seriously plan out your bidding!


Usually beginning about half an hour before an auction, the inspection period is important for anyone seriously considering getting in on a property at auction. It isn't just a final chance to see the property up close, it is also an opportunity to get a final look at the relevant documents for the home, such as the terms of settlement - as Consumer Affairs Victoria (CAV) says, you won't be able to change these if you win the auction.


Vendor & Dummy Bids

It's important to understand the term vendor bid and the difference between it and dummy bids. 

Vendor bids are a single bid or bids made by the auctioneer on behalf of the seller.  The purpose of this bid is to help the property achieve its reserve price. 

The auctioneer is entitled to bid once on behalf of the seller or in some states as many times as they like. If this bid is to be made during the auction, the arrangements for making the bid must be set out in the rule displayed before the auctions starts and the intention to make a bid should be announced by the auctioneer at the start of the auction.

A dummy bid on the other hand is a false bid made by a non-genuine buyer.  All dummy bids are illegal and attract significant penalties for the vendor (up to $20,000 in SA and up to $55,000 in NSW), the dummy bidder and in some cases the agent if it can be proved they solicited the bid. 


Rises and advances

This is the amount by which bids increase during an auction and is usually dictated by the auctioneer. They could be $500 or $5000, and do not necessarily have to be adhered to - but the auctioneer can reject your bid if they think you have not advanced the bidding by enough.


One of the most crucial terms, the reserve is effectively the point at which the auction becomes "live". If bidding does not go over the reserve then a negotiation by the highest bidder and seller may take place. This may continue for hours or days but usually a contract on the property is executed reasonable soon after the auction itself. However, once bidding goes over a reserve price the property is on the market and a winning bid is binding, so make sure you don't over-extend your budget or get carried away in the heat of the moment.


On The Market & Passed In

During the course of the auction, the auctioneer may stop the proceedings and say they are seeking advice or instruction from the vendor.  This gives the auctioneer time to discuss the progress of bidding with the vendor.

If the bidding has reached the reserve price, or is close, the auctioneer will ask the seller if they are willing to adjust their reserve and sell the property for the highest price.  If they are, the auctioneer will announce to the crowd that the property is on the market or rather that it will be sold to the highest bidder.

If the bidding does not reach the reserve price or a price the seller is happy with, the property may be passed in.  In this case the highest bidder may be given the first opportunity to negotiate a sale with the seller however this is not legislation in most states.


What to do When Your Bid is Successul



If you emerged victorious in the bidding battles, and saw the price surpass the reserve, then congratulations - you have bought a property at auction!

Normally, immediately after the auction you will be required to sign the contract, and provide the 10 per cent deposit.

This is why we want you to make sure your finances are in order - in Australia, there is no cooling-off period. Once you buy, you’re locked into the deal.

Once you have signed a contract it will be deemed that you have an equitable interest in the property and you should immediately take out insurance.


What to do When a Property Passes In

Of course, not every auction has a happy ending under the hammer. Sometimes bidding doesn’t get above the reserve, whether because of a high price set by the seller or some cautious bidding on the buyers’ end. Sometimes, no-one has made a bid at all!

Whatever the reason, when this happens the property is passed in, and does not sell. This is not uncommon - RP Data noted at the end of 2014 that only 67.9 per cent of auctions reached a sale through 2014, and this is an excellent result!


Power play

While this result may seem disappointing, it opens the door for you as a buyer to start or continue negotiations on the property. Vendors have usually become educated to the market during the process and can be more realistic with their expectations around price and conditions.

If you find yourself in this situation be aware that all other parties can now compete as well so avoid making unrealisticly low offers in the wake of a property not selling under the hammer.


Negotiating a Private Treaty Sale

Buying a home through a private treaty sale is an extremely common method throughout Australia.

Many sellers choose to list their property through private treaty sales as they offer flexibility with negotiation and give them the chance to accept an attractive offer.

Although private treaty sales do not see the heat that auctions can get, it's still important to not become too emotionally tied to the home you want to buy. Leaving your emotions out of the equation will help you to negotiate with the agent. It will also reduce the risk of potentially blowing your budget if you become too attached to the home.



  • A private treaty sale occurs when a property is listed for sale with an asking price, the buyer makes an offer to the agent, who then presents the offer to the seller, who can then decide whether or not to accept the offer. Typically negotiations go back and forth between the buyer and seller (via the real estate agent) until an agreed price is reached.
  • The seller usually lists the property for sale at their desired price, or sometimes higher to allow room to negotiate and the buyer will typically try to find the lowest price the vendor is willing to sell for.
  • Deciding on what to offer first up can be difficult. You may wish to start with your best offer, especially if there is a lot of interest in the property or you could start with a lower offer and be prepared to negotiate up. The risk with starting lower is that you may lose the property to another purchaser who comes in with a higher offer.
  • It is a good idea to try and find out as much as you can about the seller and their circumstances from the agent. If they are in a rush to sell because they’ve committed elsewhere, you might be in a position to come in with an offer lower than the asking price. Remember that the agent is working for the seller, so they will try to do everything to get the most amount of money out of you.
  • If you do not have the luxury of time, perhaps when the market is very strong and there appears to be a number of people interested in the property, determine the maximum amount you are prepared to pay and make this your first and last offer.
  • It is best to have your finance pre-approved so the seller knows you are serious and able to act immediately, however you can make your offer subject to finance, which will give you a limited time in which to receive confirmation from your lender that finance will be made available to you.
  • Always put your offer in writing to the real estate agent who will then present it to the vendor for consideration and then let you know if it has been accepted. You may need to reassess your offer several times before an agreement is reached.


Unconditional Offer Versus Conditional Offer

When you submit an offer, you'll also need to include any special terms and conditions for the sale of the home. For example, you may wish to have a longer settlement so you can sell your previous home, or perhaps the owner needs to fix up a certain part of the home. These conditions need to be included in the offer and the final contract of sale.  Here is an overview of the different types of offers:

  • Conditional Offers is a binding contract to buy a property, subject to certain conditions being met. If these conditions are not satisfied, the buyer has the legal right to back out of the contract. Common conditions may include subject to valuation, subject to finance or subject to a building and pest inspection.
  • If your offer is unconditional, it is an outright offer to buy a property. You should be 100% sure that this is the property you want and that you have access to the money to buy the property. Legislation and the process of buying a property by private treaty varies from state to state, however typically speaking, once the vendor has accepted your offer, you are legally obliged to go through with the sale or risk forfeiting your deposit.
  • Whether you are negotiating a conditional or unconditional offer, it is advisable to speak with your solicitor or conveyancer about your rights and all terms of the contract before you sign anything.


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