When the hammer comes down on the winning bid, it’s one of the most exhilarating experiences for a home buyer. But knowing what to do next and what’s required is something many home buyers are not sure about. On winning the auction, the buyer is required to pay a deposit – usually 10 per cent of the winning bid – so having the funds on-hand is imperative. In this helpful guide, we’ll explain what you can expect if yours is the winning bid when buying property at auction in Australia.

When the deposit gets paid

Once the auctioneer declares the winning bid, the agreement is unconditional and neither the buyer nor the seller can change their mind. The buyer must pay a deposit to the real estate agency at the end of the auction.

How much is paid

The deposit is usually 10 per cent of the total sale price but this should be confirmed with the real estate agent. Obviously bidding at auction means you won’t have a confirmed deposit amount ahead of the auction, so ensuring you have at least 10 per cent of the highest bid you’re prepared to make in your bank account is the best course of action.

How the deposit is paid

The deposit conditions will be made clear to all bidders before the auction, so it’s important you familiarize yourself with these and make the necessary arrangements to have your deposit on hand in case yours is the winning bid.  

Typically, payment of the deposit is made in one of three ways:

1. Personal cheque: One of the best things about using a personal cheque to pay a deposit at auction if that you’re able to make out the cheque for the exact amount of the deposit. Remember to bring along personal id, such as a driver’s licence, to verify your identity on the day.
2. Bank cheque – If you don’t have a personal cheque book, a bank cheque is the next best option. Because banks aren’t usually open outside office hours when auctions are held, make arrangements ahead of time to have a bank cheque for 10 per cent of your maximum bid. (While that could mean you might miss out if you don’t have enough deposit on hand, it’s a good way to set a limit to your spending and ensure you don’t overspend in the heat of the moment.)
3. Deposit bond – This is a legally binding guarantee to the vendor that you’ll pay the deposit and it’s useful because it can be used at multiple auctions. The property and vendor’s details are left blank and are only filled in when you win the auction. Not all vendors accept deposit bonds as a form of deposit, so it’s best to check with the real estate agent that this guarantee is permitted. 

Where the deposit goes

The deposit get paid into an audited trust account held by the real estate agent, and is only released once the agent is legally authorized to do so. On settlement, the buyer pays for the property in full, and the deposit and payment is paid to the seller’s bank account.

A reminder about auctions

Before bidding at auction, it’s important you:

• Read and understand the auction particulars and conditions of sale.
• Arrange a pre-approval for finance as auctions are unconditional.
• Be ready to pay a 10 per cent deposit by cheque or immediate bank transfer. 

Buying a property at auction is a great way to get the property of your dreams for the price you think it’s worth. But it’s vital you understand how auctions work and what’s required of you if yours is the winning bid.

For more financial advice about buying at auction, buying a first home, or growing an investment property portfolio, contact a Mortgage Express broker today.

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

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