Auctions are now becoming a more popular method of selling property. However, vendors have a lot to consider before agreeing to go to auction. For example, vendors need to determine a reserve price, bidding increments and what happens if the reserve price is not met.
Before the auction, the real estate agent will usually prepare the “Particulars and Conditions of Sale” (which, once signed, becomes the agreement for sale and purchase of the property). It is advisable to have a lawyer review this document and the certificate of title prior to the auction.
As part of this review, vendors should confirm with their lawyer that the chattels list on the front page of the document is correct. The chattels also need to be in reasonable working condition, but in all other respects in the state of repair as at the date of the agreement (apart from fair wear and tear). The Particulars and Conditions of Sale contain a warranty by the vendor to this effect. If any chattel is not in reasonable working order, the vendor’s lawyer can request that such chattel be excluded from the warranty.
There are further warranties contained in the Particulars and Conditions that lawyers should make their clients aware of.
A default settlement date is often set out in the Particulars and Conditions of Sale prior to auction but can be varied by negotiation between the vendor and the purchaser on or before the auction date. If the vendor is selling the property with vacant possession, the vendor will need to ensure there is an adequate length of time for the vendor to move out of the property or give their existing tenants sufficient notice.
If the highest bid is accepted at the auction and the auctioneer’s hammer has fallen, the sale will be unconditional and the buyer is required to pay an immediate deposit of 10% of the purchase price. If the reserve price is not met, the highest bidder is offered the first right to purchase the property immediately after the auction at the vendor’s reserve price. If after negotiations, an agreement is not reached, the property will be offered for sale to all other interested parties.