Auction in Queensland: Pros and Cons for Buyers and Sellers

Auctions are a popular way to buy and sell property and appear to be gaining traction, especially in the Townsville region. Auctions have distinct advantages and disadvantages for both buyers and sellers:

Buyers:

Pros:

1. Certainty of Purchase: Once the hammer falls, the highest bidder above the reserve price secures the property.
2. Transparency in Pricing: Auctions provide a transparent process where buyers can see their competition and know exactly what price the market is willing to pay for the property.

Cons:

1. Unconditional & No Cooling-Off Period: Unlike private treaty sales, properties purchased at auction are not subject to the statutory five-day cooling-off period under the Property Occupations Act 2014 (Qld). This means that once the hammer falls, the buyer is immediately bound to the contract and cannot withdraw, without significant penalties.
   This means all due diligence investigations and finance approval, must be completed prior to attending the auction. Conducting these enquiries may also result in a buyer spending money obtaining legal advice and ordering searches, without result if their bid is not the winning bid.
   Properties sold at auction are sold unconditionally, so if the Buyer is not able to complete the purchase for any reason on the settlement day, they will be in breach of the contract of sale, and risk losing their deposit and may be liable to be sued by the seller for damages incurred – which can be a significant amount.
2. Higher Deposit Required: Buyers must also pay the deposit which is generally either 5% or 10% of the purchase price. The deposit amount will be set prior to the auction, and Buyers should make themselves aware of the deposit amount and be prepared to transfer those funds within the timeframe set out in the contract (usually payable on the day of the auction).
3. Emotional Bidding: The competitive nature of auctions can also lead to emotional bidding, potentially resulting in overpayment.

Sellers

Pros:

1. Unconditional and No Cooling-Off Period: Sellers benefit from the absence of a cooling-off period, ensuring the sale is final once the hammer falls and the contract is not subject to any other conditions (such as a buyer being required to obtain finance approval or be satisfied with their building & pest inspections).
2. Competitive Bidding: Auctions can drive up the price of a property due to the competitive nature of bidding, potentially exceeding the seller’s reserve price, sometimes well beyond what might be achieved through private treaty sale.
3. Quick Sale: Auctions provide a definitive sale date, offering certainty and reducing the time a property remains on the market and prevents prolonged negotiations.

Cons:

1. Uncertainty of Outcome: Auctions can be unpredictable. If the reserve price is not met, the property may not sell. The auction environment can also be stressful for sellers, as the outcome is uncertain until the very last moment.
2. Costs of Auction: Sellers must bear the costs of marketing and auctioneer fees, which can be significant regardless of whether the property sells or not.
3. Suitability: The auction process may not be suitable for all property types or sellers. As some properties might not attract the desired level of interest or competitive bidding in an auction setting.