Every Saturday, thousands of Australians gather on front lawns to bid for homes. Here’s how property auctions work, what the jargon means, and what buyers need to know before raising their hand.
Auctions are a popular way to sell homes in Australia, especially in Melbourne and Sydney, where a large share of properties go under the hammer.
Sellers like auctions because competition between bidders on the day can push the price higher, and because they create a deadline that forces buyers to act.
How an auction works
Before the auction, the seller agrees on a reserve price with their agent. It’s the lowest price they’ll accept, and it is kept secret from buyers.
To bid, buyers usually need to register with the agent before the auction starts, showing identification. On the day, the auctioneer reads the rules and calls for an opening bid. Buyers then bid against each other, usually in set increments.
The auctioneer can make one or more “vendor bids” on behalf of the seller, to get bidding started or move it along. These must be clearly announced as vendor bids.
Once bidding passes the reserve, the auctioneer will declare the property “on the market”. From that point, the highest bidder will buy it when the hammer falls.
If bidding stops below the reserve, the property is “passed in”. The highest bidder usually gets the first chance to negotiate privately with the seller.
What buyers need to know
Winning an auction is binding. In most states, there’s no cooling-off period, so the winner must sign the contract and usually pay a deposit, often 10% of the price, on the day. That means buyers need their finance approved and any building inspections done beforehand.
Agents must give a genuine estimate of a property’s likely selling price. Underquoting, advertising a price below what the seller will accept to attract buyers, is illegal in states including New South Wales and Victoria, although buyers often complain it still happens.
Clearance rates
Every weekend, data firms report the clearance rate, the share of auctions that sold before, at or shortly after the auction.
A rate above about 70% is generally seen as a sign of a strong market with plenty of buyers. Rates in the 50s or lower suggest buyers have the upper hand. Because they’re released weekly, clearance rates are one of the quickest ways to track how the market is changing, especially when interest rates move.
