FAQ: What do these terms mean when selling at auction?

FAQ: WHAT DO THESE TERMS MEAN WHEN SELLING AT AUCTION?

There are a lot of terms and jargon in the real estate world. Without the proper knowledge, you could find yourself lost at sea at the auction block. Arm yourself with these words before heading out to sell your real estate in Australia or New Zealand and make sure you know exactly what’s going on before the hammer falls.

Auction agency agreement

Before a property is listed for auction, your real estate agent will present you with this agreement. Essentially, this contract outlines the reserve price of the property (if there is one), the costs and agent’s commission and will usually include a clause that places the right of selling your property with that particular agent.

Cooling off period

This is a period in which the buyer can cancel the sale unconditionally. The reason that this is an important word while auctioning is that there is no cooling off period once the hammer falls: the buyer is obligated to purchase the property.

Hammer price

This is simply the price paid when your property is sold at auction – it is what the buyer pays to you, the vendor, before capital gains tax or your agent’s commission is deducted.

Market price/market value

Do not get these two terms confused! The market price of your property is the price that is paid for it. The market value is the estimate made by your real estate agent as to the worth of the property. You could have a house valued at $400,000, but the auction results in it selling for $500,000. The first is market value, the second is market price.

Passed-in

If a property is not sold at the reserve price set out in the auction agency agreement, and the vendor does not want to put the property “on the market”, the property passes in – no sale is made.

Reserve price/without reserve

A reserve or reserve price is the lowest price at which you are willing to sell your property. If the bidding does not reach this number, it does not have to be sold. If it does, then the highest bidder at or past your reserve becomes the buyer. Without reserve means that you are selling your property without a reserve, and thus the highest bid becomes the buyer no matter how big or small it is.

Unconditional sale

Auctions, as a rule, are unconditional. When they are sold, the buyer cannot attach conditions (such as a building inspection) that must be met before they agree to buy it. Your property is sold at the price, no cooling off, no conditions.