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Auction day contract changes: Beware the dangers

20 October 2014

Imagine this. It’s 30 minutes until the auction is set to start. An interested buyer approaches the auctioneer with an extra clause for the Contract for Sale. Inclusion of the proposed clause would entitle the potential buyer to settle 30 days later than any other bidder.

Tony Cahill, legal author and contributor to the redraft of the Contract for Sale and Purchase of Land, says this is not a fair way of dealing with property.

“When the auctioneer does their introduction to the property, they typically recite the compulsory standard conditions of auctions and one of them is: ‘As soon as practicable, after the fall of the hammer, the buyer will sign the contract’. They don’t say; ‘These potential buyers will sign one contract if they succeed, but that other potential buyer will sign another with extra clauses’,” Mr Cahill said.

Mr Cahill believes it is at the heart of every auction that people are bidding on the same deal, but that is not always the case.

“I think there are a number of agents who believe the most important thing to do is to get a signed contract. One way to get that signed contract might be to maximise the number of bidders in the room by allowing certain concessions. This system is counter-productive and will breach the agents’ obligations.

“Saying that the ultimate buyer will sign one contract at an auction, when in fact different contracts may apply for different bidders is misleading and can lead to action being taken, not only under consumer law but under the Property, Stock and Business Agents Act 2002 and Regulation.”

Mr Cahill believes that the problem does not just lie with agents, but that some solicitors and conveyancers who act for intending bidders have formed bad habits.

“Often solicitors or conveyancers write letters saying; ‘Can you please confirm that if our client is the successful bidder there will be these changes’. In the interest of the auction having as many people interested as possible many vendors agree,” Mr Cahill said.

Moving forward

Mr Cahill suggests agents reassess the way they handle the situation.

“The better approach, assuming the vendor is willing to give a concession to one buyer, is to give that concession to every potential buyer. If that concession is having 90 days instead of the usual 42 days until settlement, then why not allow every potential buyer the same opportunity,” Mr Cahill said.

"If the contract is drawn in a way that gives everybody the opportunity to take the concession, then it will open up the number of prospective bidders.

“All bidders could get advice beforehand and there would not be any challenge to how the auction is conducted, say by a disgruntled would-be purchaser who finds out about a side deal after the auction.

“Unfortunately often the request for an amendment comes in half an hour before an auction and there isn’t enough time for the vendor’s solicitor or conveyancer to draft an extra clause. The safest thing to do in this situation is to say: ’It’s too late. The contract has been available for weeks beforehand. You should have asked earlier‘. Of course, if the bidding does not reach the reserve, an intending buyer can negotiate to have the clause included” he said.