In what feels like the blink of eye, buying and selling property via online auction has gone from future possibility to very real reality.
The COVID-19 crisis has prompted the entire real estate industry to expedite longer term plans to offer such services entirely online and with parts of Australia under strict lockdown, it’s now part and parcel of buying and selling.
We asked some experts to answer the biggest questions around this growing phenomenon.
As the name suggests, an online house auction is just like a regular “stand in the front yard and bid” auction, but virtual. It’s an auction on the internet.
Michelle May, a Sydney-based property flipper-turned buyers’ agent, said with an online auction, instead of physically standing at the property or auction house and placing bids, it’s done via a phone, laptop or another web-connected device.
“You can have a live stream auction, where registered bidders go up against each other in real time, or a ‘genuine time’ online auction, which is comparable to an eBay auction, which has a start and finish time,” she said.
The platforms used and how buyers participate differ, but the fundamentals are the same as a traditional, in-person auction.
An auction sets a timeframe by which a property must be sold, which is normally four weeks.
Ray Ellis, chief executive of First National, said an auction gives interested buyers time to do due diligence on contracts, as well as building and pest inspections, and to get their finances in order, before choosing how much they will bid.
“When a property is sold at auction, there is no ‘cooling-off period’, unlike when a home that is for (private) sale has been purchased. There are different rules in each state and territory concerning bidder registration too,” he said.
There’s a range of custom-built technology platforms which agents can use to run online property auctions.
They include AuctionNow, GAVL, Anywhere Auctions, Openn Negotiation, HomeBid, SaleEzy, SoldOnline, Market Buy, Transaction Room, Auctions Live and SoldOnline.
Shill or dummy bidding – the practice of bidding for the purpose of “running up the bids” without the intention of buying – is illegal in Australia, Mr Ellis explained.
“In theory, one way this might happen is if a home owner colluded with a friend to register to bid (and did so), but to stop short of the reserve figure. The problem with such a strategy would be that if a genuine buyer didn’t bid after the ‘shill bidder’ dropped out, the auction would fail,” he said.
Vendor bids are allowed, though. Made by the auctioneer on behalf of the seller, a vendor bid is not an actual bid to buy the property, but a public statement that the seller is not happy with the amount of the last bid. It’s used to keep the bidding moving forward.
The auctioneer must announce they are making a vendor bid. There are different rules across the country about how many vendor bids can be made.
Yes, it is still possible to sell in Victoria at present. While private home inspections and in-person auctions are banned in Melbourne and the Mitchell Shire until at least mid-September under stage 4 restrictions, online inspections and auctions are still permitted.
In regional Victoria, where stage 3 restrictions are in force, auctions have also shifted online, but in-person inspections by private appointment can go ahead.
Read more: Covid-19 property inspection rules
Mr Ellis said one of the biggest advantage of an online auction is convenience for remote buyers.
“Bidding can be done from anywhere with an internet connection, making it easier for more buyers to participate. Equally though, weather or local environmental challenges, such as traffic jams, can’t affect the bidding either.”
Ms May said with a virtual auction, the pressure is off for buyers. “The physical distance will allow the buyers to be more rational and also mean no last-minute run through the property before the auction begins!” she said.
Seeing bids on a screen means buyers can “think more clearly”, when compared to hearing them briefly yelled out. Also, as online auctions tend to be slower, it allows buyers to think more clearly, Ms May said.
From a buyers’ perspective, there are several disadvantages of online auctions.
Not being able to “eyeball” the competition is one, Ms May said. Being able to pick which other bidders are relying on the “bank of mum and dad”, who are the empty-nesters and so on is an important part of any buyers’ strategy.
The auctioneer has more control in an online auction, she said, because they manage the tone and speed of it. That’s something a buyer can more readily influence in person.
“Also, using the technology can be more stressful and add more pressure to the situation too.” That technology needs to work seamlessly at both ends too.
For sellers, there can be a concern that in a less “real” environment, buyers won’t get as emotionally invested and therefore won’t bid as high.
David Scholes, founder of virtual auction platform SoldOnline, said the rules with online auctions are essentially the same as a conventional one.
Generally speaking, this means bidders must:
· register for the auction and identify themselves to the agent;
· have their finance pre-approved;
· clarify the vendor’s terms on the contract via the agent and request changes if needed;
· ensure they’ve read and understood the terms and conditions of the particular platform being used, before bidding.
Ms May said buyers should always read the bidders’ guide too.
This is a document that must be provided by the selling agent before an auction. It gives information on how to register and what paperwork needs to be filled out, the relevant privacy laws and the rules and regulations of the auction.
“Make sure to get one of these before you start to seriously plan out your bidding.”