The guideActively looking3 min read

Auctions, offers and negotiation

Private treaty and auction are two different games. How each works, what the bidding rules are in your state, and how to set a limit you'll keep.

By Paddy Carroll · Founder, HomePlanner

There are two ways to buy a house in Australia and they reward completely different behaviour. In a private treaty sale you are negotiating, with time and conditions available to you. At auction you are competing, in public, unconditionally, against people whose limits you cannot see.

The two games

Private treaty

Listed with a price. You negotiate.

Conditions
You can make the offer subject to finance, or to building and pest.
Cooling off
Yes, in most states, for a few days at a small cost.
What you know
The asking price, and little about rival offers.
Due diligence
Can partly happen after you offer.
Where the pressure is
Spread over days. Agents manufacture urgency.

Auction

Listed with a date. You compete.

Conditions
None. The contract is unconditional when the hammer falls.
Cooling off
None, in every state.
What you know
Every rival bid, as it happens — the most honest price discovery there is.
Due diligence
All of it has to be done, and paid for, before the day.
Where the pressure is
Ninety seconds, in public, with your family watching.

How an auction actually runs

The rules are state law and they differ in ways that matter on the day.

  • Registration. NSW, Queensland and South Australia require you to register to bid and give you a number. Western Australia does not. Register early; doing it in the last two minutes is a bad start to a large decision.
  • The reserve is the minimum the vendor will accept. It can be, and often is, above the advertised guide.
  • Vendor bids are bids made on the seller's behalf to lift the bidding towards the reserve. They must be announced as such. NSW permits one; South Australia permits up to three. They are only lawful below the reserve — beyond it they are false bids and illegal.
  • Dummy bidding, where a bid is made with no intent to buy, is illegal everywhere and carries penalties.
  • Passing in. If bidding stops below the reserve the property is passed in, and the highest bidder normally gets the first right to negotiate with the vendor. Being the top bidder on a property that passes in is a genuinely good position.
  • On the fall of the hammer you sign and pay the deposit immediately. There is no going away to think about it.

Deciding your limit, and keeping it

Your limit is arithmetic, and you should do the arithmetic on a weekday, at a table, with nobody watching. It is the number above which this house makes your life worse. Write it down before the day, and tell somebody.

Set the numberat home, in writingthe week beforeFinish due diligencecontract, B&P, strataon the dayRegisterearly, not at the last minute90 secondsBid, or stopthe number doesn't move
Everything that gives you protection happens before the third milestone. After it, there is only the number.

The auction is designed to move that number. Not dishonestly — the format simply rewards the bidder who will pay most, and the atmosphere is built to find them. Knowing that in advance is most of the defence. Bidding in confident round increments and arriving with your finance settled is the rest of it.

Making an offer by private treaty

  1. 1Put it in writing. A verbal offer is a conversation; a written one has to be presented to the vendor.
  2. 2State the price, the settlement date, the deposit, and every condition. Terms are part of the offer, not an afterthought.
  3. 3Give it a deadline. An offer with no expiry becomes a tool for the agent to shop your number around.
  4. 4Expect it to be used. Assume the agent will tell other buyers an offer exists, because they usually will and are often obliged to.
  5. 5Decide your walk-away before the first counter, not during the third.
The agent says another buyer is at $920,000. Do you go to $925,000?

Only if $925,000 was already inside your number. You cannot verify the rival offer and you are not entitled to. Bidding against an unverifiable figure is how a limit becomes a suggestion. If $925,000 is above your number, the correct move is to leave your offer where it is and say so plainly — and mean it.

The property passed in and you were the highest bidder. What now?

You are in the strongest position of anyone. You have the first right to negotiate, the vendor now knows the market did not reach their reserve, and the pressure has moved to their side of the table. Do not rush it, and do not bid against yourself by immediately improving on your own last bid.

You're asked to sign an unconditional offer to beat a rival. What are you actually giving up?

The finance clause and the inspection condition. Which means: if the valuation comes in under the price you make up the difference in cash, and if a report finds something expensive you own it anyway. Unconditional is a reasonable choice when your finance is genuinely settled and the checks are genuinely done. It is a gamble in every other case.

Do this in HomePlannerYour broker Your broker can confirm how firm your finance really is before you decide whether to go unconditional. That is the conversation worth having the week before, not the night before.Free account required

Before you move on

  • You know whether the property is private treaty or auction, and what that changes
  • Your limit is written down before the day
  • All due diligence is finished before an auction, not planned for after
  • You've registered to bid, if your state requires it
  • Any offer you make is in writing, with conditions and a deadline