Buying property at auction is a common experience for Australian homebuyers, particularly in competitive markets like Melbourne, Geelong, and the Surf Coast. Auctions account for a significant proportion of property sales in Victoria, and understanding the process is crucial for anyone looking to buy in these markets.
Unlike a private sale where you can make an offer subject to finance approval, building inspections, and other conditions, an auction sale is unconditional. When the auctioneer’s hammer falls and you are the highest bidder, you are legally bound to purchase the property. There is no cooling-off period, no finance clause, and no ability to renegotiate the price. This makes thorough preparation before auction day essential.
The auction process in Victoria typically begins with a marketing campaign of three to four weeks, during which the property is open for inspection, the vendor’s statement (Section 32) is available for review, and interested buyers can arrange building inspections and obtain legal advice. On auction day, registered bidders compete openly, and the property is sold to the highest bidder above the reserve price.
Because auction purchases are unconditional, having your finance in order before auction day is not just recommended, it is essential. If you win at auction and subsequently cannot secure finance, you risk losing your deposit and facing legal action from the vendor for breach of contract.
Obtain pre-approval: A home loan pre-approval (also called conditional approval) gives you a clear indication of how much you can borrow based on your income, expenses, assets, and liabilities. This sets your maximum bidding limit and gives you confidence to bid on auction day. However, it is important to understand that pre-approval is conditional: it is subject to the lender’s valuation of the specific property and any other conditions outlined in the approval letter.
Understand pre-approval limitations: Pre-approval does not guarantee final approval. The lender still needs to value the specific property, confirm that it meets their lending criteria (some properties may be considered non-standard or high-risk), and verify that your financial situation has not changed since the pre-approval was issued. Properties with unusual features, heritage overlays, or in flood-prone areas may receive lower valuations than expected.
Get a property-specific valuation: For properties you are seriously considering, ask your broker whether the lender can arrange an upfront valuation before auction day. Some lenders will agree to value the property in advance, which significantly reduces the risk of a post-auction valuation shortfall. This is not always possible but is worth exploring, particularly for higher-value properties.
To minimise risk and maximise your chances of a successful auction purchase, complete the following steps before auction day.
1. Review the Section 32 (Vendor’s Statement): Have your conveyancer or solicitor review the vendor’s statement thoroughly. This document contains critical information about the property including title details, planning overlays, easements, covenants, zoning, rates, and any owner-builder work. Issues identified in the Section 32 cannot be used to renegotiate after auction, so you need to know about them beforehand.
2. Arrange building and pest inspections: Commission a qualified building inspector and pest inspector to assess the property before auction day. A building inspection costs approximately $400 to $600 and can identify structural issues, water damage, electrical problems, and other defects. A pest inspection checks for termite activity and damage. These costs are at your risk. If you do not win the auction, you cannot recover them.
3. Set your maximum bid: Based on your pre-approval amount, the property’s estimated value, your building inspection results, and your personal budget, set a firm maximum bid. Write this number down and commit to not exceeding it on auction day, regardless of the competitive pressure in the room. Auction fever (the emotional urge to keep bidding beyond your limit) is one of the biggest risks for auction buyers.
4. Prepare your deposit: You will need to pay a deposit on auction day, typically 10% of the purchase price. This is usually paid by personal cheque, bank cheque, or electronic transfer. Confirm with the selling agent before auction day which payment methods they accept and have your deposit funds readily available. Some agents may accept a deposit hold or smaller initial payment, but 10% is standard.
5. Register to bid: In Victoria, you must register with the selling agent before the auction begins. You will need to provide identification (such as a driver’s licence) and sign a registration form. You will be given a bidder number to use during the auction.
Emily and Josh were first home buyers looking to purchase in Geelong West, where most properties sell at auction. They came to us six weeks before auction day and we arranged pre-approval for $650,000. We also coordinated an upfront valuation of their target property, which the lender valued at $620,000. With this figure, they set their maximum bid at $620,000, knowing they had certainty of finance approval up to that amount. On auction day, they secured the property for $608,000. Because the upfront valuation had already been completed, their formal loan approval came through within five business days, well ahead of the 60-day settlement period.
If bidding does not reach the vendor’s reserve price, the property is “passed in”, meaning it is not sold at auction. In this situation, the highest bidder gets the first opportunity to negotiate directly with the vendor. This can actually be an advantageous position for buyers, as negotiations are private and you may be able to agree on a price below the reserve.
If you negotiate a purchase after the property passes in, you may be able to include conditions in the contract (such as a finance clause or cooling-off period) that would not have been available at auction. However, the vendor is not obligated to accept conditions, and in competitive markets they may insist on an unconditional sale even post-auction.
While every auction is different, there are several bidding strategies that experienced buyers use to improve their chances of success.
Bid confidently from the start: Opening with a strong, confident bid can set the tone and discourage less committed bidders. Some buyers like to wait until bidding slows before entering, while others prefer to be the opening bidder and establish dominance early.
Use odd increments: Instead of bidding in round numbers ($5,000 or $10,000 increments), try using odd increments like $3,000 or $7,500. This can disrupt other bidders’ mental calculations and make the bidding feel less predictable. It can also help you stay within your budget rather than jumping in larger increments.
Know when to slow down: As bidding approaches your maximum, reduce your increment sizes to signal that you are reaching your limit. This can encourage other bidders to think the property is approaching its market value and potentially drop out. Never reveal your maximum limit to other bidders or the selling agent.
Congratulations, you have won the auction. Now the real work begins to ensure a smooth path to settlement.
Sign the contract and pay the deposit: Immediately after the auction, you will sign the contract of sale and pay the deposit. Ensure you review the contract carefully (ideally with your solicitor present) before signing. The deposit is held in trust by the selling agent or the vendor’s solicitor until settlement.
Notify your broker immediately: Contact your mortgage broker as soon as possible after winning the auction to begin the formal loan approval process. Provide them with the signed contract and any other information required. Your broker will submit the application to the lender, who will arrange a formal property valuation and complete their final assessment.
Settlement preparation: Your conveyancer will handle the legal aspects of the transaction, including title searches, adjustment calculations for rates and utilities, and preparation of settlement documents. Most auction contracts specify a settlement period of 30, 60, or 90 days. Your broker will work to ensure loan approval and funding are ready before the settlement date.
Consider engaging a buyer’s advocate if you are new to auctions or find the process intimidating. A buyer’s advocate can attend the auction on your behalf, manage the bidding process within your budget, and draw on their experience with auction dynamics. Their fee (typically $5,000 to $15,000 or 1-2% of the purchase price) can be well worth the investment, particularly for high-value properties.
Bidding without pre-approval: This is the single biggest mistake auction buyers make. Without pre-approval, you are gambling that your finance will be approved after the unconditional purchase. If the lender declines your application or values the property below the purchase price, you face serious financial consequences including potential loss of your deposit.
Not doing due diligence: Skipping building inspections, legal reviews, or strata report analysis to save money or time can prove extremely costly. A major structural defect or legal issue discovered after auction cannot be used to renegotiate or withdraw from the purchase. The few hundred dollars spent on pre-auction inspections is insignificant compared to the cost of buying a property with hidden problems.
Exceeding your maximum bid: Auction fever is real. The competitive atmosphere, the pressure of other bidders, and the desire to secure the property can push buyers well beyond their intended maximum. Every dollar you bid above your limit increases your mortgage and reduces your financial buffer. If the price exceeds your pre-approval, you may need to find additional funds or risk the lender declining the application.
Not understanding the contract terms: The contract of sale should be reviewed by your solicitor before auction day, not after. Key terms including the settlement date, deposit amount, special conditions, and any vendor warranties should all be understood and agreed upon before you start bidding.
Understanding the key differences between buying at auction and buying via private sale helps you assess the risks and prepare accordingly for each scenario.
| Feature | Auction Purchase | Private Sale |
|---|---|---|
| Cooling-off Period | None | 3 business days in Victoria |
| Finance Clause | Not available | Can be included |
| Building Inspection Clause | Not available | Can be included |
| Price Negotiation | Open competitive bidding | Private negotiation with agent |
| Price Transparency | All bids visible to all | Other offers may not be disclosed |
| Deposit | Usually 10% on the day | Negotiable (often 5-10%) |
In some cases, you may be able to secure a property before auction day by making a strong pre-auction offer. While vendors are not obligated to consider pre-auction offers, some will accept if the offer is compelling enough and the terms are attractive.
A successful pre-auction offer typically needs to be at or above the expected auction result, unconditional (no finance or building inspection clauses), accompanied by proof of finance capacity, and presented with a short acceptance window to create urgency. The advantage for buyers is avoiding the stress and uncertainty of auction day, though you may end up paying a premium for the certainty of securing the property.
If you are considering a pre-auction offer, discuss the strategy with your broker first. They can help ensure your finance is as close to unconditional as possible and advise on the likelihood of the vendor accepting based on market conditions and the agent’s feedback.
A mortgage broker helps at several points when buying at auction. They arrange pre-approval with appropriate lenders, coordinate upfront valuations where possible, ensure your deposit is available in the right format, respond quickly post-auction to submit formal applications, manage the approval process through to settlement, and troubleshoot any issues that arise (such as valuation shortfalls) quickly and effectively.
At Mortgage & Finance Advisory, we have extensive experience supporting auction buyers across Geelong, the Surf Coast, and Melbourne. Our team understands the urgency of post-auction finance processing and works to ensure your approval is fast-tracked so you can settle with confidence. Call us on 03 9020 2699 to discuss your auction finance needs.
If the lender’s valuation comes in below the auction price, they will lend based on the lower valuation figure. This means you will need to fund the difference from your own savings, seek a top-up from another source, or ask another lender for a second opinion valuation. This is one of the key risks of buying at auction and why getting an upfront valuation before auction day is so valuable.
Yes, pre-approvals from online lenders are valid for auction bidding. However, be aware that some online lenders have longer processing times for formal approval and may be less responsive if issues arise post-auction. For auction purchases, working with a broker who can escalate your application and resolve issues quickly is particularly valuable.
Most selling agents in Victoria accept personal cheques, bank cheques, or electronic transfers for the auction deposit. Some agents also accept deposit bonds or deposit guarantees, which allow you to pay a fee for a guarantee document rather than providing cash upfront. Check with the selling agent before auction day to confirm which payment methods they accept and have your preferred method ready.
Yes, first home buyers can access the First Home Owner Grant and stamp duty concessions when buying at auction, provided the property meets the eligibility criteria. However, these grants are typically applied at settlement rather than being available on auction day, so you still need the full deposit amount available upfront. Your solicitor can factor the grant into the settlement calculations.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
