The Block 2018: How auctions work in Victoria plus common auction questions and confusing terminology explained

The Block apartments go to auction on Saturday, with the teams poised to walk away with potentially hundreds of thousands of dollars, depending on how much buyers are prepared to pay.

For the uninitiated, auctions might seem a little confusing. The fast-paced, high pressure and often emotional situation, not to mention the strange terminology, can make it difficult to keep track of what’s going on.

Here’s a rundown of how auctions work in Victoria, including answers to the most common auction questions.

How does an auction work?

At an auction, interested buyers submit offers until bidding reaches the reserve, at which point the property is considered “on the market”.

When there are no further bids, the hammer falls and the highest bidder is the successful purchaser.

What does an auctioneer do?

The auctioneer’s role is to facilitate the auction by taking bids from the crowd and encouraging further bidding to achieve the highest sale price for their client, the vendor.

They are also responsible for announcing the rules of the auction before it begins, as well as making vendor bids.

Auctioneers must be licensed estate agents or their representatives, and are sometimes also the selling agent for the property. It’s possible for owners to auction their own property, but this is uncommon.

What is the reserve price?

The reserve is the minimum price the vendor is willing to accept to sell their home. The reserve is usually secret and does not need to be advertised.

What does ‘on the market’ mean?

A property is considered “on the market” when bidding has reached or exceeded the reserve price, meaning that the property will be sold to the highest bidder.

Prior to calling a property on the market, the auctioneer or real estate agent may pause the auction to talk to the vendor to decide whether to sell the property to the highest bidder from that point onwards.

When a property is called on the market, there is often another flurry of bidding as bidders realise the property will be sold under the hammer.

Related: View the five Gatwick apartments for sale

• Kerrie and Spence: 1/34 Fitzroy Street, St Kilda
• Hans and Courtney: 2/34 Fitzroy Street, St Kilda
• Sara and Hayden: 3/34 Fitzroy Street, St Kilda
• Norm and Jess: 4/34 Fitzroy Street, St Kilda
• Bianca and Carla: 5/34 Fitzroy Street, St Kilda

What does it mean if a property ‘passes in’?

If bidding doesn’t reach the reserve, the auctioneer will “pass in” the property, ending the auction.

In Victoria, whoever is the highest bidder before a property is passed in has first right to negotiate with the vendor to buy the property.

If a deal can’t be reached with that bidder, the agent can attempt to negotiate with other bidders, or list the property for sale.

What is a vendor bid?

Vendors are able to bid on their own property at an auction, and this is usually done to encourage further bidding, rather than to buy their own home.

Before the auction, the auctioneer must announce the arrangements for making vendor bids. Vendor bids must be placed by the auctioneer.

In Victoria, there is no limit to the number of vendor bids, but in other states there are limitations. In NSW, vendors are only allowed one vendor bid, while in South Australia, vendors are allowed three vendor bids.

If the property is jointly owned, and one of the co-owners wants to buy the property, they are allowed to bid in the crowd like any other buyer, but not through the auctioneer, because this is not considered a vendor bid.

Can a bid be refused?

Auctioneers have the right to refuse bids at any time during an auction. This is often done if the auctioneer wants bidding to increase in large increments, and the bidder is offering a lower amount than what the auctioneer is asking for.

Auctioneers can also refuse to accept bids made when the hammer is falling. Late bids made after the hammer has fallen cannot be accepted.

Can an auction be called off?

The real estate agent or vendor can withdraw a property from sale at any point before the auction.

This is usually only done if the agent believes there are no genuine buyers interested in the property at a price that will satisfy the vendor, or if the vendor changes their mind and wishes to keep the property.

Auctioneers can withdraw the property from sale at any time during the auction before the hammer falls.

What happens after you win an auction?

The highest bidder when the hammer falls is the successful purchaser and must sign the contract and pay a deposit on the spot. No changes can be made to the contract at this point.

The property is only considered sold once the contract has been signed and a deposit paid. The deposit is normally 10 per cent of the purchase price and a cheque is the most commonly accepted form of payment.

If you intend to bid but don’t have a cheque account, it’s best to arrange a bank cheque for 10 per cent of your maximum purchase price beforehand.

If you win an auction but refuse to pay the deposit or sign the contract, the vendor may be able to sue for any losses incurred as a result.

Can you make an offer before auction?

Buyers can attempt to buy the property before the auction by submitting an offer. This is generally done if there is a lot of interest in a property, and a buyer feels they can secure it for a lower price than it would otherwise sell for at auction.

For offers before auction, vendors will usually only accept an offer and take the property off the market if accompanied by a signed contract.

It’s up to the vendor whether to accept offers, and in many cases, such as deceased estates or properties sold by public trustees, offers will not be considered, as auction is thought to be the best way to sell the property at market value.

No pre-auction offers will be accepted for The Block apartments.

What is underquoting?

Underquoting is when a property is advertised at a price lower than the vendor’s reserve or asking price, a price already rejected by the vendor, or the agent’s estimated selling price, which should be based on the three most comparable recent sales.

If a vendor rejects an offer or tells the agent their reserve, the property cannot be advertised below that price. Vendors often set their reserve immediately before the auction to avoid any risk of underquoting.

The issue of underquoting has improved since changes introduced in May 2017 requiring properties to be advertised with a single figure, or a price range of no more than 10 per cent.

Real estate agents engaged to sell a property must also prepare a statement of information identifying three comparable sales, the median house or unit price of the suburb, and an indicative selling price.

If a property sells at auction for considerably higher than the reserve price, it’s not necessarily underquoting. It may simply indicate there is a lot of competition to buy that property, leading to offers that exceed the vendor’s expectations.

Is there a cooling-off period when buying at auction?

Properties sold at auction have no cooling-off period, meaning buyers have to be certain they want to proceed with the sale before bidding.

Buyers should also conduct all due diligence before the auction, including pre-purchase inspections and having the contract reviewed by a legal professional.

Properties sold up to three days before or after an auction don’t have a cooling-off period.