Auction terminology

Buyers often assume that they know how the auction will go.

Auctioneer rings the bell. Selling team go inside for one last consult with the vendor. Auctioneer strides out and starts bellowing at the crowd.

“Ladies and Gentlemen… Welcome to the auction of 42 Derby Street…” and so it goes.

But what they don’t always understand are the variations that occur during any auctioneer’s process. Variations can easily cost a bidder their opportunity to roll out their desired bidding strategy if they aren’t familiar with the nuances of auctioneer phraseology, and in some cases, I’ve seen buyers miss out on placing their bid altogether.

I’ve seen the devastation on a buyer’s face at the moment they realise they’ve blown their chance of buying because they didn’t realise the auctioneer was about to sell or pass the property in to someone else.

So what are some of these nuances?

There are four common misunderstandings that we see. The first is assuming that every auction features a half time show, otherwise known as a mid-auction referral. This takes place usually when the bidding slows down, and is usually when the auctioneer has not called the property “on the market”, or advised the crowd that the bidding has reached reserve.

If the auctioneer determines that the bidding is not at the level required to place the property on the market, (or in other words, if the bidding has not reached reserve), they may decide to deal with the highest bidder and pass the property in without referring.

In this particular instance, buyers must listen carefully to the auctioneer’s instruction. If the auctioneer states any of the following, it is an indication that now is the time to place a bid, not later;

“I’ll be dealing exclusively with this bidder”,

“If I don’t get any further bidding, I’ll be passing the property in to this bidder”.

“Let me tell you what happens next if we don’t get further bidding ….”

All of these are signals that there may be no half time show.

There are other important hints that we may catch at the start of the auction pre-amble. If an auctioneer states the words “non-referral auction”, this explicitly means that there will be no half time break. They won’t be going inside to refer.

It’s a critical cue.

When buyers chit-chat, or dogs are barking, kids are crying, planes are flying overhead, these cues can be missed. We always stand near the auctioneer and make sure we can hear every word.

The second misunderstanding is assuming that the property is not on the market until the auctioneer states that it’s on the market. If in doubt, buyers should ask, “Is the property on the market yet?”

I’ve attended many an auction when the auctioneer has responded with, “Yes, we are. We hit the reserve a while ago.”

There are some less obvious phrases that an auctioneer adopts, however, and sometimes they can confuse a buyer who is expecting to hear the words, “on the market”. Some of these phrases incude;

“Playing for keeps”,

“This bidder holds the keys”,

“We are selling”,

and “We’ve met reserve”, among a few others.

Buyers also often incorrectly assume that every reserve price is fixed from the commencement of the auction. Some auctions have no reserve, and although this is rare, it’s often advertised clearly for such a campaign. Most auctions, though have desired reserve at the commencement of the auction, and a vendor willingness to reconsider their auction reserve price pending the bidding at the start of the auction. In these circumstances, the vendor may have two auction reserve figures in mind; the figure that their auctioneer is permitted to advise the crowd of if bidding reaches the desired price quickly, or the figure that they’d like the opportunity to discuss mid-auction about if bidding does not reach their desired price.

For any buyers who are hoping for an auction pass-in, (this may relate to someone who hasn’t received finance approval and is hoping to privately negotiate and incorporate a finance clause during pass-in negotiations), they may get a rude shock if the auctioneer strides out and announces that the vendor is prepared to place the property on the market at the current bid.

If this is a game plan, the buyers must discuss this approach with the agent first, rather than assuming that they can second-guess a pass-in.

Finally, a buyer’s biggest blunder, arguably, is assuming that an auctioneer is bluffing. Whether it be a bluff about knocking the property down (ie. selling it to the highest bidder at that moment), or refusing a bid, buyers cannot assume that they can control the auctioneer.

I recall an auction in March this year where a buyer refused to adhere to the pre-reserve price bidding increments. The auctioneer was calling for ten thousand dollar bids and he was offering $2,500. The bid was with me, and despite the other buyer offering $2,500 more, the auctioneer refused his bid because the property had not reached reserve, and the auctioneer was calling for $10,000 rises at that point.

The property passed in to me and I negotiated the purchase. The other bidder was aghast and panicked outside while the negotiations ensued, but unfortunately he missed the point that an auctioneer has a legal right to set the bidding increments.

Other times, I’ve seen buyers caught out when the auctioneer has ‘knocked the property down’ in a manner that was faster than they were expecting.

We’ve all heard it before. They will not be taking late bids. The fines are huge and an auctioneer can’t legally accept a bid once the hammer has fallen.

For those who sit back and wait, it’s a dangerous tactic.

Related links:

https://www.realestate.com.au/advice/avoid-making-these-common-mistakes-buyers-make-at-auction/

https://www.whichinvestmentproperty.com.au/blog/14307-the-7-rules-of-bidding-at-auction