Buying a house at auction

If you’re looking for a home to buy, here are some tips for what to do when it comes to buying at auction.

5 minute read

Preparing for an auction

Buying a new home is exciting but it can also be pretty stressful. If you’re bidding at an auction, the uncertainty and intensity of the moment can add even more pressure.

The more prepared you are going into an auction, the better you’ll be able to handle the situation. To get familiar with the ins and outs of an auction before bidding, try to get along to one as an observer.

Here are some other important things to think about.

Before auction day 

There's a few things that need to be done before auction day, and it can take time to be fully prepared, so be sure to start your due diligence early. 

Researching a property

Make sure you research the property thoroughly before the auction. If you’re the successful bidder, you’re legally bound to buy the house unconditionally and pay the deposit – usually 10%. So, it’s essential to know exactly what you’re buying.

• Get an idea of the property’s value – the agent usually provides a list of recent sale prices in the area, which may or may not reflect that house’s value. In some cases, you may need to cover the cost of a registered valuation to secure a home loan.
• Get your solicitor to check the certificate of title, which covers things like shared access and what you’re allowed to do with the property.
• Check the council’s property file, including the LIM (Land Information Memorandum) report for things like building consents and flood risks.
• Carefully inspect the house, land, and neighbourhood – it’s worth getting a property inspection report from an accredited inspector (it could save you a lot in the long run) or ask if the agent has one, and talk to neighbours if you can.   

Find out more about how to fully research a property.

Details from the agent

If you want to bid at an auction, let the agent know well in advance and ask them to tell you if someone else makes an offer on the property before the auction.

Pre-auction offer

If the seller gets an offer before the auction, they can sell their property or hold the auction earlier and then the offer on the table will be the opening bid. If you want to put in a pre-auction offer, check the auction terms and conditions and let your solicitor and bank know your plans.

Online auction

If it’s an online auction, you might need to download an app and register online. Get all the details from the agent and make sure you understand how the app and online bidding work, at least a day or two beforehand.

Check the details

The agent will provide you with information to review with your solicitor such as the terms of the auction, and the sale and purchase agreement that tells you the deposit amount and settlement date. If you want to change anything in the agreement before the auction, you’ll need to arrange this before the auction by talking to the real estate agent and your solicitor. The seller will decide if they’re happy to accept any changes or conditions you propose.

Make a plan for the auction

Further on in this article you will find information about bidding on the day, but before auction time it’s good to formulate your own plan.

To get an idea of different bidding tactics, try and go along to other auctions (some real estate agents stream their auctions online which can be good to watch if you can’t make it in person) to see how they work, and talk to friends and family who have purchased at auction before. Some options for bidding include:

• bidding yourself
• bringing along a trusted companion (a parent or close friend) to bid with you
• arranging for a real estate agent to bid on your behalf.

When it comes to auction time, adrenaline and emotion can sometimes take over, so ensure you know your top dollar before the auction, and plan to stick to it.

On auction day

When you arrive, check in with the agent as you may need to register and get a bidder’s number.

Reserve price

Prior to the auction, the seller sets the minimum price they will accept for their property – the reserve price – which is only known by the agents and auctioneer.

Bidding

If you can’t make it to the auction on the day, you can bid over the phone. If that’s your plan, let the agent know in advance so they can make arrangements. Another option is to nominate someone you trust to bid for you. Ideally, choose someone who’s had auction experience and give them written permission stating your maximum bid.

The auctioneer will introduce the property, read out the terms and conditions, and announce any other important details. When the auction starts, the auctioneer will ask for an opening bid and, as bidding continues, they’ll let bidders know the minimum amount bids can increase by.

Sometimes, before the reserve price is reached, the seller will make a ‘vendor bid’, which the auctioneer has to identify.

If the reserve price is met, the auctioneer will usually announce that the property is on the market. Following this, the highest bidder wins the auction. But if bidding stops below the reserve price a number of things can happen next.

• The seller might agree to accept a lower reserve price.
• The auctioneer or agent might take the highest bidder to one side and privately negotiate a higher bid. If the higher bid is accepted by the seller, the auction will continue with the higher bid as the new reserve price.
• The property can be passed in, which means it isn’t sold.

After the auction

If you win the auction, you’ll need to sign the unconditional sale and purchase agreement. Settled.govt.nz explains the ins and out of sale and purchase agreements, and has other more detailed information available.

You must have your deposit ready, as you’ll generally need to pay this within 24 hours of winning an auction.

The conditions of the agreement will also have to be met by the dates stated in the agreement, including payment in full by settlement day. On settlement day your bank will arrange for your loan (mortgage) to be made available and transferred to your solicitor’s trust account. Once everything is ready to settle, your solicitor will transfer the final amount to the seller’s solicitor. When that money has arrived, your solicitor will register the property title to you.

If you’re the highest bidder but the reserve isn’t met, you may be able to negotiate with the seller’s agent after the auction.

There’s a fair bit to get your head around with an auction but if you do your due diligence thoroughly beforehand, you’ll be well prepared. Best of luck for your next auction. We wish you every success with finding your dream home.

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The information in this article is provided for general purposes only, and is a summary based on selective information which may not be complete for your purpose.  To the extent that any information or recommendations in this article constitute financial advice, they do not take into account your financial situation or goals and is not intended as personalised financial advice. While BNZ has made every effort to ensure that the information provided is accurate, you should not rely on this information to make any financial decision without first having sought advice specific to your circumstances from an authorised financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this article.