Tips For Auctions And Private Treaties

2011 May 5

The process of buying a house at auction can be nerve racking. It is important that you understand that when your bid is successful in an auction, you will be signing a contract to pay for the house on the same day. You have no recourse if you want to change your mind after the purchase. Please do your homework and make yourself aware of all of the things that could potentially go wrong when buying a home at an auction. Here are some tips that can help you make the most out of buying a house at an auction or through a private treaty. 


You must get pre-approval for a home loan before an auction. Your loan application must be properly assessed and approved, subject to a valuation of the property. Many lenders will not pre-approve mortgages because many people who apply for them choose not to proceed with the purchase of a home. Some banks see processing mortgage pre-approval as a waste of resources. Check your local banks and lending institutions to see if any will pre-approve a mortgage before you bid on a home at auction. 

Making an Offer Before the Auction

If you are absolutely set on buying a specific home, you can try making an offer before the auction commences. Make an offer that is realistic but still under your maximum bidding amount. You should put the offer in writing along with your preferred time frame for settlement of the auction. Vendors often like when buys make bids before the auction, as they are happy to secure a favourable price instead of putting the home up for competitive bidding. If the vendor comes back with a counteroffer, it may be to your advantage to offer slightly more and advise the vendor that that it is your final offer before the auction begins. If you get no response, it may not be in your best interest to contact them again. If the same vendor contacts you immediately before the auction, tell them that you may or may not be bidding. Their reaction can often tell you if they are seriously considering your bid. 

Setting Your Limit 

You should always set the limit of how much you are prepared and able to spend before the auction starts. Once you have determined your personal limit, never go over it. One idea is to pick a reasonable number as your limit and to make bids that are several thousand dollars or more below your limit. If you are approved to for $300,000, it may make sense to bid $278,500 on a home, as your bid would beat those approved for $275,000 or $278,000. It may seem like a strange strategy, but it can pay off big time if you bid on the right home at the right auction! 

Don’t Take Guide Prices Seriously 

Intentional under quoting of the expected sale price of a house is illegal in some places and definitely unethical, but it still happens often. It is very common for properties to sell for significantly more than the amount that the property is listed for in the price guide. Many real estate agents either don’t know the actual value of a property or they are trying to get as many potential buyers as possible to become emotionally attached to the property before the sale. This should go far in showing you why informed buyers need gauge on what properties are worth for yourself. If you don’t know what a certain house is worth, do some research about recent selling prices of other comparable homes in the area. You can attend multiple auctions and research past sales. You should also research the property itself to see what it last sold for. Then you can compare that to the information that you’ve found researching the prices of other similar homes in the area. The key is to go to the auction informed so that you can make an informed purchase. 

Negotiate Contract Changes Before Auction 

The contract for sale will outline what is included in the sale of the property as well as the time frame for settlement of payment due to the seller. This contract can be negotiated but that must be done before the auction commences. The vendor is not obligated to change their contract after a house is sold at auction but some may be willing to do so. 

Tips for Private Treaty Sales 

The private treaty method of buying a home is often a bit less stressful than buying a home at an auction, particularly if you are purchasing your first home. A private treaty sale will often be handled by a real estate agent, though it can also be arranged directly by the owners of the house. Buying a house by private treaty means that you should not have to exchange contracts until you have a mortgage loan approved by a bank. 

Don’t Show Your Hand 

It’s fine to express interest in a house to the agent or vendor handling the sale, but you should try not to show too much emotion. If you can, let them know you are interested in some of the other properties at the auction. Disclosing your finance position to an agent or vendor is usually not a wise thing to do. Agents will ask if you have approved financing or if you have are able to put down a deposit. These questions help the agents get information about you as a buyer, though that information can be used against you later. Don’t be rude, but also don’t give them so much information that they’ll have the upper hand in negotiations. 

Do Your Homework 

Find out as much information as you can about how much other properties in the same area have sold for in recent months. You can go to auctions and learn about local property market trends. If more than 75% of the houses at the auction have sold, this would be indicative of a thriving market. If less than 50% of the houses have sold it would be considered a slow market. 

Don’t Believe Anything That They Say 

Agents will often say that there’s a higher offer on the table than a bid that you have just made. It’s best not to believe them if they tell you this. Remember to stay within your limit and never negotiate a price over it. You may have to show them that you are willing to walk away. If you do this, you won’t have to worry about bidding against yourself and paying an artificially high price for you home. 

Put your offer in writing 

Real estate agents are obligated to submit all offers to the seller for review. You should always submit your offer in writing. Remember that your offer is not legally binding until both you and the vendor have signed the contract. Remember that you can negotiate not just the price, but also the settlement time frame and the items included in the sale. Always negotiate changes to the contract before the auction and always make special conditions, such as a longer settlement time frame, known to the vendor upfront as well.

Get expert advice

If you need additional advice then consider asking friends who are experienced property investors as they often bid at auctions. There are useful resources such as property investment forums that you can use to access the experience of others if you don’t have friends who are investors.

In addition to this you should always use an experienced conveyancer for your purchase. They can help you with your due diligence up front, to ensure you don’t run into any traps later on.

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