How to buy your first house at auction

Step 1: Understanding pre-auction offers

Before the auction day, some sellers are open to considering pre-auction offers. This can be a good way to avoid the pressure of bidding on auction day. Here’s how it works:

If you're interested in making an offer before the auction, reach out to the real estate agent. They will communicate your offer to the seller. It’s important to note that pre-auction offers are typically made on the same terms as the auction contract (e.g., unconditional, with no finance clause).

Pros: 

• If the seller accepts your offer, you can secure the property without facing the competitive atmosphere of auction day.

Cons: 

• Some sellers may use your pre-auction offer as a benchmark, hoping to drive up bids on auction day. Additionally, sellers often prefer the competitive nature of an auction and may reject pre-auction offers unless they are significantly higher than their expectations.

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Step 2: Bidding at auction

Auction day conduct

Arriving early gives you time to get a feel for the atmosphere, observe other potential buyers, and talk to the agent or auctioneer if you have any last-minute questions. In some states of Australia, it's mandatory to register before bidding. Make sure you bring photo ID and any required documents. You’ll be given a bidder’s card or number to raise during the auction.

Your bids

Know your absolute maximum bid before the auction begins. Factor in all your financials, including any pre-approval from your lender, and stick to this limit to avoid emotional overspending. Don’t be afraid to make the first bid if the auctioneer calls for one. This shows you’re serious and can set the tone for the auction.

Pay attention to the bidding increments, which are often set by the auctioneer (e.g., $10,000 or $5,000). If the bidding slows down, you might want to offer a smaller increment to keep things moving but within a range you're comfortable with.

Vendor bids

A vendor bid is a bid made by the auctioneer on behalf of the seller to help the auction reach the reserve price. It’s perfectly legal, but the auctioneer must clearly state when they are placing a vendor bid. Vendor bids are designed to keep the auction moving or to raise the bid closer to the reserve price. Don’t let it intimidate you—treat it like any other bid. Stay focused on your own bidding strategy and don’t get caught up in the pressure.

Auction lingo

Familiarising yourself with common auction terms can help you feel more confident and prepared. Here are some key terms:

• Reserve price: The minimum price the seller is willing to accept for the property. The auctioneer won’t reveal this price, but once bids exceed it, the property is “on the market” and will sell to the highest bidder.
• Passed in: If bidding doesn’t reach the reserve price, the property is passed in. The highest bidder usually has the first right to negotiate directly with the seller after the auction.
• On the market: When bidding meets or exceeds the reserve price, the auctioneer may declare that the property is on the market, meaning it will be sold to the highest bidder.
• Vendor bid: A bid placed by the auctioneer on behalf of the seller to encourage higher offers. The auctioneer must declare when they are making a vendor bid.
• Unconditional sale: When you buy at auction, the sale is unconditional, meaning there are no cooling-off periods or conditions like finance or building inspections after the auction. You’re committed to the purchase as soon as your bid is accepted.

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Step 3: Paying the deposit

If you’re the winning bidder at an auction, you’ll need to pay a deposit immediately after the auction concludes. The deposit is usually 10% of the purchase price, although the amount can vary depending on the auction terms. Make sure to confirm this with the real estate agent before the auction.

You’ll need to pay the deposit on the day of the auction, so ensure you have the funds ready. Most auctions accept payment via bank cheque or electronic funds transfer (EFT). In some cases, you can arrange with the agent to pay a portion of the deposit upfront and the balance later.

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Step 4: Cooling off period

It’s important to note that auctions don’t include a cooling-off period. Once you pay the deposit, the sale is final, and you’re legally bound to complete the purchase.

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Step 5: Additional documentation for First Home Buyers

If you’ve utilised grants and schemes:

When lodging your application with a participating lender (see the full list here: https://www.housingaustralia.gov.au/home-guarantee-scheme-participating-lenders), you will also need to supply a declaration form that is signed and dated by an approved person, such as an accountant, police officer, teacher, etc. Generally your chosen lender will supply this form for you, and at Beck McLean Finance we will fill in this form based on our in depth discussions and email it to you to sign and send back to us. Additionally, when applying for grants or schemes, you will need to supply a copy of your Medicare card. Generally you will supply these when you’ve completed a pre-approval, but it’s important to make note of if you haven’t applied for a pre-approval. 

When can you withdraw first home super saver scheme savings?

You can withdraw your FHSS savings when you are looking to purchase a home. You have a 24 month time frame (inclusive of a 12 month extension) to purchase a house from the time you withdraw your savings, so you do not need to have a property in mind. 

You must request to withdraw your savings before owning a property. If ownership of a property has been transferred to you, you’re no longer eligible to release your savings. 

How much can I withdraw?

You can withdraw up to $15,000 of your voluntary contributions from any one financial year, up to a total of $50,000 across multiple years, including earnings made. The maximum release amount includes:

• 100% of your eligible personal voluntary super contributions you haven't claimed a tax deduction for (non-concessional contributions)
• 85% of your eligible salary sacrifice contributions (concessional contributions)
• 85% of eligible personal voluntary super contributions you've claimed a tax deduction for (concessional contributions)
• deemed earnings associated with these contributions (this will be different from actual earnings in your super fund)

How do I withdraw my first home super saver scheme savings?

Follow the following steps to withdraw your savings from super:

1. Sign into ATO online services through myGov. 
2. Request a determination. The ATO will advise your maximum release amount.
3. Request a release of your savings. The ATO will arrange for money to be released from your super and will pay it to you. They will withhold an estimate of the tax owed on the withdrawal amount. 

What if I don't end up buying a property?

If you don’t purchase a home, you have 2 options: recontribute the funds back into your superannuation, or pay a tax equal to 20% of the concessional amount released, removing the tax benefits of utilising the FHSSS.

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Step 6: Settlement

Once all conditions of the sale are satisfied (e.g., building inspection, finance approval), you will move towards settlement. On the settlement date, the balance of the purchase price is paid, and ownership of the property is transferred to you. The conveyancer or solicitor will handle most of the legal paperwork, ensuring that the property title is transferred into your name and that any outstanding payments, such as rates and taxes, are settled.

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Buying your first home at auction is an exhilarating experience, but it requires preparation and a clear strategy. By understanding the auction process, setting a firm budget, and being familiar with auction terms, you can approach the day with confidence and increase your chances of securing your dream property. If you’re unsure about any aspect of the auction process, consider seeking advice from a mortgage broker or property advisor to guide you through the steps, ensuring you’re fully prepared to make a winning bid.