As the auction market heats up this spring – real estate agents are reporting great prices and much higher rates of selling under the hammer through late October and into November – buyers new to the process will be entering the market.
An auction room may appear to be a level playing field. But inexperienced bidders may not realise that they may be competing with bidders who have added their own private conditions to their bids.
Called variations of terms, these are fairly common practice, says auctioneer Mark Sumich.
Sumich, who is the chief judge for the REINZ auctioneering and the World Auctioneering Championships, says that it occurs at almost every auction.
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“The rest of the room may not know, but it’s up to what the owner will allow,” he says. “At the end of the auction, when people are signing up, you ask ‘are there any variations for this client?’”
Mostly, these variations are to change settlement dates – often to match a potential bidder’s settlement date on selling their property – or of deposit amount or date of deposit payments. Sumich says such variations have to be agreed in writing with the vendor, and it is entirely up to them whether they want to accept. The practice is common enough that it is included in the mock auction scenarios used for the REINZ auctioneering championships.
Harcourts agent Travers Smyth, who markets most of his properties by auction, says that agents want to make the process include as many bidders as possible.
“So if it’s not an inconvenience to the seller, it may help to push up the bidding and the price. You want as many unconditional bidders as possible.
“In the same way, we have to look at strong offers pre auction and ask yourself, ‘would they withdraw?’ Do we bring an auction forward or will the buyer go and find something else. You take a bit of a risk.”
Smyth says that asking for a variation that brings forward a settlement date is becoming more common, as cashed up buyers don’t want the hassle of renting between selling their old house and moving into the new one.
Bayleys national auction manager Conor Patton says that if the owner agrees then buyers can bid under their own side agreement conditions.
“The owner maybe can say let all the other parties know, but it not publicized on the floor. For example, today, out of four auctions I had, three had variations.” But these are not conditional sales, Patton points out. As well as variation on settlement dates, the most common other variation is from the usual 10 percent deposit at the drop of the hammer to 5 percent down, another 5 percent later.
“That’s usually when people have funds in a term deposit, they need time to break that deposit,” he says. “Normally the agent, as best practice when qualifying the buyer, needs to front foot these, make sure that they are happy with the terms, and the buyers are aware of this.”
The REA had no comment to make on the practice, but their advice site for buyers and sellers, settled.org.nz, says that buyers can ask for the variation in settlement or deposit terms in writing that applies only to that buyer.
Experienced conveyancing lawyers recommend that you ask your agent ahead of time whether other potential bidders have made these arrangements that may give them an advantage at bidding time, but are not generally disclosed to the others in the auction room.
