How do online real estate auctions work?

As online auctions quickly became the norm throughout the pandemic, many agents, vendors and buyers alike have found that adopting technology in running online real estate auctions have many added benefits.

A long-time advocate of digital tools, Realtair’s Head of Digital Education, Lee Woodward, believes the use of technology in auctions provides better transparency for all parties involved in the sale. In speaking with real estate legal expert, Greg Jemmeson from JemmesonFisher, he says the agents need to be aware that the same conditions and laws apply just like in-person auctions. But what does this mean exactly?

When running an online real estate auction, agents still need to be mindful that:

1. Auctions conditions have to be sent to buyers or displayed clearly
2. Bidders must be registered for states where this applies
3. There must be a start and end date (for timed auctions)
4. The agent(s) should be familiar with their state or territory legislation

Different types of online real estate auctions

Timed auction

• There is a commencement date, and buyers can bid through until a final auction date/time.
• This is an auction sale, a reserve is set at the start of the auction, all bids are unconditional.
• The agent and auctioneer have control over the minimum bids that are accepted during the auction.
• Bidders bid online from anywhere in the world at any time.

Greg says, “With a timed auction if it commences from day one, the moment it goes online, a reserve needs to be set. You cannot commence an auction without a reserve being set before the auction. You can’t set it halfway through.”

A more traditional auction with a live-stream

• This type of auction is done in-rooms or at the property without a crowd.
• An auction date will be set, and then the auction will commence live and end when the hammer falls.

Online auctions may become part of the process of private treaty sales as well. In 2019, 40% of the sales right across Australia were done, performed and transacted by auction. Greg says, “An auction is a process where we have legitimate competition for a commodity. Live streaming would be brilliant when you have two, possibly three people that had previously been on a private treaty wanting to buy the property. You could immediately start a form of auction.”

What agents need to know about registering bidders

Every state has different requirements for the registration process.

Whether the auction is live-streamed or timed, there will be no cooling-off period. If the auction is timed and the property is sold before the final bidding time, then the purchaser would need to waive their cooling-off rights.

Purchasers who want to register to bid, either on a timed or streamed auction, still need to come forward and be identified by the agent or the auctioneer.

• A prospective purchaser must be verified by the agent as the same person bidding and a genuine buyer.
• Different states have different requirements for identification; some prefer passports, driver’s licences, or Medicare cards.

What the auctioneer and agent are responsible for

• Do everything in your power to minimise any potential disruption.
• Be transparent about bidding and pricing from the outset.
• Make sure all the paperwork is correct. 
• Provide the auction conditions during the registration process. 
• Provide written authority upfront.
• Provide full details of auction conditions. For example, the vendor reserves the right to bring the auction forward. If this is a condition, you need to make all parties who are prospective purchasers aware of the auction date being brought forward, to get the best possible price to your vendor. Prospective purchasers should be sent a text to advise if they wish to be emailed or texted the notification. They can then opt in to have a ‘wish to be notified’ communication. Give them reasonable time, such as 24 hours and say, “This is when the auction will commence.” 
• Make sure bidders have a unique identifying code or card. 
• A prospective purchaser must sign the authority so that they know that the auctioneer will bind them to the contract if they’re the successful bidder. They must be aware that the auctioneer will be signing the contract on their behalf, binding them to the sale if they are the successful bidder.
• Determine how the deposit will be paid.
• Make sure the purchaser is aware that the auction will be recorded and that there will be bids by way of audio link or phone. 

Once the online auction starts

The auctioneer must read the auction conditions out when she/he commences the streaming of the auction.

With a timed auction, if it’s set for 4:00 pm Thursday, for example, you can commence bidding. Greg says, “Where the auction starts from day one until a final bidding stage, that is just an offer on the way through. It’s just a slow burn auction, and as far as the regulator’s concerned, that’s a valid bid. It’s registered, it’s recorded, and all parties can see it, but the final auction date is at some other set period of time. It is not underbidding as long as it’s clearly defined in the terms and conditions that it is a bid.”

On the fall of the hammer, an auctioneer essentially has total authority to bind both the purchaser and the vendor to the contract. This authority is undisputed, and Courts have repeated time and time that they will not interfere with than auctioneer’s ability to bind the parties on the fall of the hammer. With a timed or live-streamed auction, this would be immediately after the auction.

If a purchaser refuses to sign

Whether live-streamed, timed or a traditional in-person auction if a purchaser refuses to sign and it’s okay for the vendor, the auctioneer will use their discretion.

Obviously, with streamed and timed auctions, the auctioneer will sign, because they’ve been given the authority. Greg says, “If the purchaser doesn’t proceed, then it’s a matter for the vendor to enforce the contract by way of specific performance or damages.”

How does conveyancing work?

Technically, in all states, a purchaser should be able to walk into a property and say, “I’ll buy it right here and now” and be able to exchange there and then on the spot. Greg says, “Some will have cooling-off periods. Some will be subject to finance. But, nothing is preventing me from, in any state, from buying a property there and then on the spot if the contract’s available and it always should be.”

This can vary by state, for example:

• In Western Australia, the agent prepares the contracts themselves.
• In New South Wales, you have to have a contract before you can show the house. 

Greg says, “I would warn any agent to be very careful exchanging a contract without special conditions, because there may be some aspect of the property that needs to be disclosed, and without that disclosure and the special conditions, the agent can become liable for misrepresenting that property. It’s slowly being changed now. With the introduction of things like PEXA, the process is being far more streamlined.”

These are testing times, but this is also an opportunity to adapt to new and sometimes better ways of doing business.