The Awesome Auction

The auction’s awesome, right? We’ve all heard about them, but what do we actually know about them?

Let's look at the auction from the perspective of the key participants - the seller, the buyer, and the real estate agent.


From the Sellers vantage point you have:

A defined time frame
  • You know what you are getting - an intense, short selling programme.
  • This means you need to be well prepared and have the information required for buyers due diligence.
  • You are only dealing with those buyers currently in the market.
  • You set the timetable, which is publicly announced and buyers have to make a decision.
  • Buyers need to get themselves organised, complete their due diligence, arrange committed finance if required and so on.

High profile marketing
Because it's a defined timetable and specific pool of eligible buyers it is important to get all those buyers into the auction room on the day. An auction is normally accompanied by a high profile marketing campaign - that is, spending money on newspapers, flyers, signboards and so forth.

Cash Buyers
The great news, when that hammer goes down, you have a cash, unconditional deal - your house is sold!  Potential buyers who are not in a cash position are excluded. 

Competition to get the best price

The auction process is designed to get several people in the room competing for the property. This gives buyers confidence - after all others are interested in purchasing the property and someone else is prepared to pay only slightly less than they were. It gives the seller confidence that they have multiple people telling them what their home is worth. Of course the downside is that if there is no competition it's a very public "thud".

Who actually sets the price paid at the auction? The winning bidder, I hear you say. You would be wrong! The price paid for your home in an auction is established by the under-bidder. That's right - the second most interested person in the room that day sets the price. You see the winner doesn't have to pay their maximum price - they just have to pay a fraction more than the under-bidder was prepared to pay.


The Buyers Perspective is important too:
  • If you are not cashed up and ready to purchase unconditionally you are not a buyer at auction - find another property.
  • There is a reduced number of people chasing the property and as a buyer you don't have to worry about someone coming in with an offer containing conditions. There is normally a discount associated with cash, leverage it!
  • The buyer needs to be prepared, so your due diligence must be done and you need to be ready on the day to buy unconditionally. This may mean spending money upfront (eg getting a valuation done for finance purposes) with no guarantee of winning the auction.
  • You can see your competition and this can give buyers confidence - after all others are interested in purchasing the property and someone else is prepared to pay only slightly less than they were.
  • It is public - if there are no other bidders on the day the seller is publicly “whack” around the head if their price expectations are out-of-line and/or there is a general lack of buyers (competition).
  • You don’t have to pay your top dollar - you only have to beat the competition on the day.


Of course we should not forget the third participant in the process - the Agent's Perspective
  • The real estate agent and their sales manager, they love auctions:
  • A tight defined timetable, with
  • A committed vendor who has invested in, and
  • Paid marketing enhancing the agents profile, and therefore
  • Places themselves under pressure to make a decision on an
  • Unconditional sale, so
  • Everyone gets paid straight away
  • While putting on a show to enhance their image

An inside scoop - did you know that a significant drop in the owners price expectations at the conclusion of an auction campaign is often defined as a successful auction by the agent? Seller conditioning it's called.  


What makes an auction property? There has to be some criteria, characteristics that make a property suited to auction - right? Nope. Experience tell us that the strongest connection between the property and choice of sale method is the agent, not the characteristics of the property or the owner. The decision to auction or not is directly correlated to the sales person. Some agents like auctions so do them, some hate them and don't. Some real estate offices, towns, cities like auctions and some don't.  It has pretty much nothing to do with the owner or the property.

What do you think? Been through an auction as a buyer or seller? What was your experience?

2 Comments on “The Awesome Auction”

  • James Nisbet said:

    I purchased my first place at auction. I found it an incredibly stressful process, but tried to remain calm throughout.

    The biggest issue for me was not knowing anything about the other bidders, or having an opportunity to consider my options. Everything is split second, last minute go go go.

    From my perspective it definitely wasn't the ideal way to buy a property, and from the seller's perspective probably fairly average also - the property sold at the seller's bottom dollar.

    Posted 20 th March, 2012
  • Mike Butcher said:

    Totally agree with James comments above and would never buy or sell at auction again. We purchased our current house in an auction situaion held on site surrounded by 40 on-lookers - most of which I suspect were neighbours just there for the show. We were told by the agent that there were 3 to 4 other potential bidders, however this was not the case and the auction dragged on and on and on with myself and one other bidder..... the pace slowed down to a virtual standstill with the auctioneer suggesting another measly $50 more each time before a very protracted fall of the hammer. The auctioneer was clearly putting on a show for all to see and it was extremely stressful for me as the successful winner. Never again.

    Posted 7 th April, 2012

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