House auctions in NZ: What you need to know

House auctions in NZ: what you need to know

We’ve all heard the words “going, going, gone” in relation to house auctions. Here are some tips to ensure that your dream home doesn’t get away at auction.

Auctions are a public sale where potential buyers bid against each other until only one is left and the auctioneer says those iconic words: going, going, gone. They bang the gavel (hammer) to indicate the auction has been won and you have purchased the property.

How to prepare for an auction

Preparing for an auction can be a concern for first home buyers. Start by familiarising yourself with the auction process well before the day. First you register in advance. At this point you can negotiate to add conditions to the pre-auction documents, says Loan Market adviser Helen Stuart. That might be a 5% deposit instead of 10%, or a longer settlement.

Another advantage of registering is the agent must by law let you know if a pre-auction offer is made on the property. You can make an offer as well if you are willing to pay more. It’s not uncommon for homes to be sold prior to auction day in this way.

The next question is often, ‘what happens on the day of the property auction?’

On auction day, you’ll go to the property or an auction room. The auctioneer starts the bidding with a suggested starting price. To bid you quite literally hold your hand up.

Each bid needs to be higher than the previous one. The bid increment might start quite high such as $10,000 increases. Towards the end the bid increment may be as little as $500 or $100.

If the bidding on a property auction reaches the reserve price the vendor is willing to sell for, the auctioneer lets buyers know by saying the words “on the market”.

When properties are sold at auction, the winning bidders sign sale and purchase agreements on the day and pay the deposit. If your deposit is made up of KiwiSaver monies, beware that you’ll need to source the 5% or 10% deposit on the day from elsewhere, such as family or a temporary overdraft, says Stuart.

If the bidding stalls before the house reaches the reserve price, the auctioneer will pause the auction and talk individually to the vendor and highest bidder. Often the auctioneer will encourage the vendor to drop the reserve or the top bidder can be encouraged to meet the vendor’s price expectations.

Top tips for auctions

So you've been to the open home and now you think you're ready to tackle auction day. Here are some tips and tricks that we reckon will be handy.

• Before auction day, get your lawyer to check the contract to ensure there are no surprises in the terms and conditions. Paying for these checks up front is about doing your due diligence and can help lessen any pre-auction concerns and protect against nasty surprises.

• Confirm your finances before auction day. Speak with your mortgage adviser (broker) or bank mortgage manager to ensure that your pre-approval is valid for this property. It can be difficult for first-home buyers to bid at property auctions in NZ if the bank requires due diligence on the specific property. If your deposit is less than 20%, the bank usually needs a registered valuation which makes it very difficult for first-home buyers to bid at auction, says Stuart.

• You will be buying at auction “unconditionally”. That means if you win, you have purchased the property and must go through with the sale on the agreed date at the agreed price. If for any reason your mortgage pre-approval is withdrawn after the property is sold at auction, you can’t pull out of the sale which could mean losing the deposit.

• Some real estate agencies allow what’s called “vendor bidding” where the auctioneer puts in a bid or bids on behalf of the vendor to push the price up on properties for sale by auction. The vendor bid tactic is allowed by law to start bidding, keep the bids moving, or persuade buyers to raise their bids. Under the Fair Trading Act, vendors can’t bid after the auction has reached the reserve price.

Auctions are one of several methods of sale in New Zealand. Other methods of sale that buyers and sellers use include negotiation and tenders.

Online auctions took off in Covid-19 lockdowns and found favour with real estate agents, buyers and sellers. An online auction is not really much different to phone bidding . It’s a really good idea to have someone with you in the room who is an experienced home buyer and can give advice as the auction progresses.

Not sure an auction is for you? There are always opportunities to put conditional offers on properties that you may like. Check out our first home buyers hub for more information on making an offer, and about what you should read up on when you're purchasing.