Disclaimer:
This article provides general information only and does not constitute financial, legal, tax, or investment advice. Property investment involves risk. Always do your own research and seek personalised advice from qualified professionals before making investment decisions.
Key Takeaways
- Auctions are unconditional, so research the property and have the auction documents reviewed before bidding.
- Confirm finance for the specific property before bidding and check the auction documents for the required deposit amount and payment method.
- Pre-auction research may include the title, council information, property inspection and any property-specific specialist checks.
- Set a bidding limit based on confirmed finance, the property research and your own circumstances.
- A successful auction bid commits the buyer to the purchase, so unresolved finance, legal or property risks need to be addressed before bidding.
An auction is a public sale in which the property is sold to the highest bidder after the seller’s reserve is reached. Buyers need to understand the auction terms and complete their checks before bidding.
If you win an auction, you are committed to purchase the property. Ask a lawyer or conveyancer to review the auction terms and sale and purchase agreement, and confirm finance for the specific property before bidding.
How Property Auctions Work in NZ
Auction campaign timing and bidder-registration arrangements vary. At the auction, bids are open and the property is sold to the highest bidder after the seller’s reserve price is reached.
If the reserve is not reached, the property may be passed in. The highest bidder may be invited to negotiate, but the seller is not required to accept a price and no below-reserve outcome is assured.
Pre-Auction Due Diligence
Because auction bids are unconditional, research the property before bidding. Relevant checks may include:
Pre-auction research checklist:
- LIM report: Check for any council compliance issues, consents, or hazards
- Title search: Verify ownership, easements, covenants, and encumbrances
- Building inspection: Identify structural issues, weathertightness, and repairs needed
- Value and finance: work out the property value and confirm any lender valuation or approval requirements
- Tenancy review: if tenanted, check the agreement, lawful rent records and relevant landlord obligations
Financing Your Auction Purchase
Confirm finance before the auction. Pre-approval is not approval for a specific property, so ask the lender what property, valuation, insurance and other requirements must be satisfied before bidding.
Ask the lender or regulated mortgage adviser what the approval covers and disclose the property details. Lending decisions and conditions are application- and property-specific.
Finance checks before bidding:
- Ask for written confirmation of what the finance approval covers
- Give the lender the property details and complete its property-specific requirements
- Check the auction documents for the deposit amount, timing and accepted payment method
- Set a limit that remains within confirmed finance and your own risk settings
Setting Your Maximum Price
Before the auction, set a bidding limit using confirmed finance, current property information, expected income and costs, vacancy and repair scenarios, and independent advice where needed. Do not assume future capital growth.
Auction bidding can move quickly. Keep the agreed limit visible and remember that future resale value or capital growth is uncertain.
Bidding Strategies
Start Strong or Wait?
Some bidders prefer to enter early and bid confidently to discourage competition. Others wait until bidding slows before entering. There is no universally correct approach; it depends on the situation and your temperament.
Bid Increments
The auctioneer controls whether a bid or proposed increment is accepted. Focus on the announced process and your bidding limit rather than assuming a particular increment will influence other bidders.
Use a Buyer's Agent
A licensed buyer's agent may be authorised to bid on a buyer's behalf. Check their licence, written authority, services, fees and any conflicts; using one does not guarantee a price or outcome.
If the Property Passes In
When the reserve is not reached, the property may be passed in. The highest bidder may be invited to negotiate, but price, conditions and whether any agreement is reached remain matters for the buyer and seller.
However, the vendor is not obligated to sell to you and may choose to negotiate with other interested parties or relist the property.
Risks of Buying at Auction
Key Risks to Consider:
- No finance condition means you must complete even if your loan falls through
- The agreement and circumstances determine rights and remedies for defects discovered after purchase
- Emotional bidding can lead to overpaying
- Due diligence costs are lost if you do not win the property
- Settlement default can trigger the agreement’s remedies and requires legal advice
The Bottom Line
Buying at auction creates an unconditional commitment if the bid succeeds. Review the legal documents, research the property, confirm finance and the deposit arrangements, and set a property-specific bidding limit before taking part.
Auction outcomes and future investment returns are uncertain. Bid only within the limit supported by your finance, research and circumstances, and obtain legal, building, lending or financial advice where the unresolved issue requires it.