Auctions: some love them, others hate them and they are always controversial. For real estate agents auctions are a great way of driving potential buyers towards a set date with set open for inspections and the vendor usually paying for greater advertising fees and potentially display furniture because they feel as if they are very ‘public’ in the lead up to the auction date. This assists the effort going into making the sale. Usually the real estate agency gets lots of free publicity from the campaign as well. For properties which are very desirable there is a chance that an auction campaign can drive the price up also as buyers compete with each other. In Victoria, auctions also offer no cooling off period: the auction is final! The thought of higher prices is what drives a vendor to auction and the thought of a bargain is what makes it appealing to buyers!
If you are thinking of buying your new home at auction please do your homework. Underquoting is rampant so before you pay for a building or pest inspection and fall in love with the home make sure that you are not being misled. Agents will often advertise the home at a lower price than it will be likely to sell for in order to drive interest and demand. By inflaming desire they guarantee a larger crowd on auction day and each under bidder, even though their bidding ceiling is low, plays a part in driving the price up. Find out what other homes have sold for in the area, compare the land size and check out the contract as well.
In Queensland there are currently some auction reforms which are being pushed which may also come into play in other states. The Queensland Government would like to see an end to underquoting and is planning to ban price guides at auctions. Real estate agents are worried that this will impact the effectiveness of auctions. In South Australia the auction system advertises the higher of what the agent feels the house is worth and what the owner wants to sell for and keeps the reserve price at no more than 10% above that.
The strongest advice for anyone thinking of buying at an auction is to attend plenty of them especially in your preferred purchase area.