There is an increasing trend today for properties to be bought and sold at auction. If you are considering buying at auction for the first time, be aware that there are some matters which differ from the usual 'offer on paper' approach and which require your attention beforehand.
Firstly, you may wish to advise the real estate agent of your interest if you have not done so. Then, if the vendors (sellers) are considering a pre-auction offer, the agent will be able to contact you and, if necessary, help you to submit your own offer. Reference to a sale by auction does not prevent the vendors from selling prior to the auction date.
Secondly, all offers at auction must be unconditional. If you require a mortgage to purchase the property you must arrange finance beforehand. Generally you will be required to pay a deposit of 10% of the purchase price on the day of the auction.
Because you cannot make the agreement conditional on any matters, it is advisable to ask your lawyer to read and approve the auction contract before the auction. The contract contains the terms and conditions of the sale, legal description of the property and list of chattels. If you wish to change any of the details, e.g. the amount of the deposit or the settlement date, you will need approval from the vendors prior to auction.
If you want to undertake any further investigations you must arrange for those to be completed beforehand. We suggest you obtain at the very least:
- A current Land Information Memorandum (LIM) report - this report can take up to 10 working days to receive;
- A building inspection report - building inspectors become very busy at the onset of Spring and prior to Christmas so allow for this;
- An up to date search of the property's Certificate of Title, if not supplied to you before the day of the auction. Your lawyer can evaluate the Title and advise whether it may be defective in any way, or of any other matters which should be drawn to your attention.
Make sure you have a realistic idea of the value of the property and the amount you are prepared to pay for it. If in any doubt, obtain a valuation from a valuer.
You would be wise to attend other auctions beforehand to familiarise yourself with the process. If you feel too nervous to bid yourself, you may wish to have a friend familiar with the process, or even your lawyer, bid on your behalf.
Vendor bidding is the practice of vendors (the sellers) bidding at auction on their own property. If the property has a reserve price (the minimum amount the vendor will accept), the vendors may reserve the right to bid themselves, up to this figure. The bids may also come from others in the auction audience who are acting as agents for the vendor, or from the auctioneer themselves.
Although this can result in vendors forcing higher bids on their own properties, it can also result in many purchasers being (to put it politely) "dissatisfied" when they discover that their bidding wars have been won against the present property owners.
In a case brought by the Commerce Commission against a real estate auctioneer last year, the Court of Appeal confirmed that the auction process must not be misleading or deceptive to a purchaser. The Court went on to recommend some procedures which might be followed by an auctioneer:
- If there is a reserve price, and vendor bids are to be made, this should be announced by making a statement before the bidding for each property begins;
- The auctioneer must make each vendor bid identifiable as such. The Court suggested that although the words 'vendor's bid' do not need to be used, it would be possible to use words such as 'the bid is with me' or 'I have the bid now'.
You may view the Real Estate Institute of New Zealand's Auction Code of Practice here.
So, if you have consulted the relevant professionals beforehand, and are confident you are happy to purchase unconditionally, good luck with your bidding.
Sept 2004
All information in this article is to the best of the author's knowledge true and accurate. No liability is assumed by the author for any losses suffered by any person relying directly or indirectly upon this material. It is recommended that you should consult a senior representative of Rotherhams before acting upon any information provided in this article. 
