What is a property auction?
A property auction is a process where a property owner sells their land by way of a public auction process. The auction date is typically publicised ahead of time, and any prospective purchasers have the opportunity to conduct due diligence on the property in the lead up to the auction. This involves doing things such as conducting building and pest inspections, conducting searches of the strata records, and reviewing the contract and the terms of the sale.
The auction is conducted by an auctioneer, being a person who holds a real estate licence and has also been accredited as an auctioneer. The auction process is regulated by the Property Stock and Agents Act 2002 (NSW) which sets out key requirements such as who may bid, what information must be taken from bidders, licensing requirements for conducting an auction, and disclosure obligations.
Prior to commencement of the auction, the vendor decides on a reserve price, being the minimum price that they are willing to accept for the property. The auction will then commence, and once the bidding exceeds the reserve price, the property will sell to the highest bidder.
What are the rules of an auction in NSW?
Section 18 of the Property and Stock Agents Regulation 2022 (NSW) contains the conditions for a sale by auction. Some of the key conditions include:
The vendor’s reserve price must be given to the auctioneer in writing before commencement of the auction.
All bidders must be registered in the bidders record and must display their identifying bidder number when making a bid.
If there is a disputed bid, the auctioneer has the authority to decide whether the bid is accepted. The auctioneer can also accept a bid that they believe is not in the best interests of the vendor.
Bids may only be taken from registered bidders. People registered to bid must be recorded in a bidders record.
The auctioneer may make one vendor bid at an auction.
Dummy bidding or price collusion is not permitted.
The highest bidder is the purchaser, subject to any reserve price. This means that the sale is final when the auction hammer falls. There are no cooling off periods for properties sold at auction in NSW.
What are the advantages of a sale by auction?
The auction process is generally thought of as one that favours the vendor. It creates a fast paced and high pressure bidding environment where prospective purchasers can make competing bids in order to try to secure the property. Often the vendor’s real estate agent will also be talking to bidders during the process in order to further drum up competition and drive the property price higher.
What are the disadvantages of a sale by auction?
If there are not enough registered bidders at the auction, the auction is unlikely to have the desired effect – that is, to provide a competitive bidding environment that drives the price of the property up. For a vendor, this is disadvantageous. For a prospective purchaser, a poor performing auction will likely be an advantage.
When should a property be sold by public auction?
We always suggest that you take the advice of your appointed real estate agent when deciding whether or not to take your property to auction. This is because your real estate agent will be the one who will be liaising directly with the interested buyers, and will be in the best position to understand whether there will be enough interest from potential buyers to create a beneficial auction environment.
The right market and buyer conditions can lead to excellent results at a property sale by public auction.
When should a property not be sold by public auction?
Your real estate agent might also advise you not to sell your property by public auction in certain circumstances, such as where there isn’t enough available time to wait for a typical auction campaign to complete, where a property is being sold ‘off market’, where you require the sale to be made discreetly, or where there are lots of interested buyers early on in the sale process and there is no need to wait for the full auction campaign to complete.
A real estate agent might also advise a vendor not to sell their property by auction if they think there is a risk that the property will not meet their reserve price.
What happens if the property auction reserve price isn’t met?
If the bids at the property auction do not meet the vendor’s reserve price, the property will be ‘passed in’ at auction. This means that the auction process will be at an end and the parties will be free to negotiate a private sale again.
According to section 66T of the Conveyancing Act 1919 (NSW), if a contract is entered into on the same day that a property was offered for sale by public auction but passed in, there is no cooling off period and the sale is final, just as if it was sold under auction conditions.
What does sale by private treaty mean?
A sale by private treaty simply means a private sale that is not made at a public auction. Typically the property will still be listed for sale with a real estate agent and will undergo a marketing campaign.
What are the advantages of a private sale or a sale by private treaty?
A sale by private treaty offers the parties to negotiate the terms of a contract, outside of the high pressure auction environment. This is often thought of as advantageous to buyers, however that is not always the case.
A private property sale may provide some of the following advantages to a vendor:
a) The ability to quietly sell the property without arranging a public auction.
b) The ability to arrange a quick sale without the need for a typical auction campaign which might run for 6 weeks or more.
c) The ability for a real estate agent to better control the sale process and manage the interested buyers.
d) The ability for a real estate agent to create their own offer process, such as a blind auction or sale by expressions of interest.
What are the steps involved in a sale of property by private treaty?
When selling a property by private treaty, the following steps will typically be taken:
Your contract will be prepared by a property lawyer or licensed conveyancer.
Your appointed real estate agent will start advertising the property as ‘for sale’ and will typically show interested buyers through the property.
Once a party is interested in the property, the proposed contract for sale will be sent to the interested buyer so that they can review the proposed terms of the sale, and review the relevant property searches that are attached to the contract of sale.
Price and terms will typically be discussed between the interested purchaser and the vendor’s selling agent.
Any contractual changes, including updating the settlement period, the deposit amount, or other terms of the sale, as well as due diligence enquiries, will typically be discussed between the legal representatives of the parties. The purchaser will typically conduct all of their due diligence at this time as well, which may include building or pest inspections, or obtaining a strata report to search the records of any strata or community scheme associated with the property.
Once the price and terms of the contract have been agreed, the parties will sign and date the contract, which brings it into legal effect.
Once contracts have been entered in to, the parties will then have to perform their contractual obligations within the timeframes specified in the contract, such as paying the purchase price and signing the transfer documents.
Is a real estate sale by private treaty binding once contracts have been signed?
A property sale by private treaty is normally binding once contracts have been signed, but subject to any contract conditions negotiated by the parties or any legislated cooling off rights that a buyer might have.
According to section 66S of the Conveyancing Act 1919 (NSW), where residential property is sold by private treaty in New South Wales, a contract for the sale of land will have a cooling off period that lasts for 5 business days. During the cooling off period, a purchaser may rescind the contract by providing a notice to the vendor and forfeiting part of the deposit on the contract.
Where there is high demand for a property or where there is an auction scheduled, often a vendor will ask that the purchaser waive their cooling off rights. This is done by the purchaser’s conveyancing lawyer providing the vendor with a certificate that is prescribed under section 66T of the Conveyancing Act 1919 (NSW).
There are some exceptions to these rules, and so if you are considering entering into a property contract it is important that you obtain legal advice on your individual circumstances.
Other considerations when selling your property.
Your real estate agent is often the best person to provide you with advice in relation to the best way to sell your property.
Just because a property is set down for an auction, it does not mean that the property cannot sell before the auction. Often a property will be set down as for sale by auction, however will sell by private treaty very early in the sale process if a vendor is happy with a price that is offered by a purchaser.
It’s important that your legal representative is familiar with the auction and private treaty processes, so that they can properly advise you on the legal implications of the sale, and can work in conjunction with your selling agent to make sure that buyer’s expectations are managed and that any contractual negotiations are carried out quickly, in order to keep the sale process moving along quickly and efficiently. Slow or misaligned responses from your legal representative can jeopardise the sale process and can cause buyers to lose interest or pay significantly less for your property. Accordingly, it’s important that you have specialist conveyancing lawyers dealing with your property sale to ensure that you receive the best possible sale price for your property.
Property sale contracts are highly technical and it is also important that you are receiving the best legal advice. At Thornton + King our conveyancing lawyers have prepared and negotiated thousands of contracts for the sale of property by public auction and by private treaty. Our firm has more Property Law Accredited Specialists than any other boutique law firm in NSW. If you’d like to speak to a property law and conveyancing expert to help with the sale of your property, give us a call or submit an enquiry now.
