Auctions are supposed to be simple.
The property goes under the hammer, everyone bids on the same terms, somebody wins, contracts are signed and everyone wanders off either celebrating or wondering why they bid another $20,000 because a complete stranger raised their paddle.
For property developers, however, the standard auction format does not always fit quite so neatly.
That raises a question developers often ask: can you change the conditions of an auction contract before you bid?
Your strategy might require a longer settlement. You may need a slightly different deposit arrangement. There could be another contractual condition that would make the deal workable for you.
In many circumstances, depending on the state and the contract involved, the answer is yes. But there are limits.
What About a Due Diligence Clause?
If the question is, “Can I buy at auction subject to due diligence?”, the practical answer is generally no.
The whole purpose of an auction is to create an unconditional sale. The vendor wants certainty, and the auction process is structured around everyone bidding on a property knowing that, if the hammer falls in their favour, they have bought it.
That means your due diligence needs to happen before the auction.
For a developer, that could include planning controls, title restrictions, easements, services, development potential, likely construction costs, comparable sales, finance, market demand and, most importantly, whether the deal actually makes financial sense.
Similarly, conditions such as subject to finance are unlikely to fit comfortably within a traditional auction transaction.
But that doesn’t mean every term of the auction contract is necessarily set in concrete.
Some Auction Conditions Can Be Changed
In many Australian states, it may be possible to negotiate certain auction conditions before the auction takes place.
The important phrase here is BEFORE the auction. You don’t want to win the auction and then announce: “Excellent. Just one tiny thing. Can we change settlement from 30 days to 90?” That conversation probably isn’t going to go well.
If there is a condition that would prevent you from bidding, the time to raise it is while everyone is still calmly exchanging emails with the selling agent well before you bid. The request can then be referred to the vendor and their solicitor or conveyancer for consideration.
There is absolutely no obligation for the vendor to agree. But they might.
Vendors Actually Want You to Bid
This is the part buyers sometimes forget. The vendor wants as many genuine bidders at the auction as possible. An auction with six enthusiastic bidders tends to be more exciting for a vendor than an auction where one lonely person raises their hand and everyone else stares at their shoes.
If a relatively minor change to the contract allows another serious buyer to participate, agreeing to it may be commercially sensible.
Imagine there are three people prepared to bid to $1.2 million. One of them can’t participate because they need a longer settlement. From the vendor’s perspective, eliminating that bidder simply because they need 90 days instead of 30 may not necessarily produce the best result.
That does not mean the vendor will automatically say yes, but a request that creates relatively little additional risk may have a reasonable chance of being accepted.
And yes, the word reasonable is doing quite a lot of work in that sentence. Asking for the purchase to be subject to finance, planning approval, soil tests, a builder’s opinion, your accountant’s blessing and whether Mercury is currently in retrograde is probably going to be a harder sell.
What Might Be Negotiable?
Settlement terms are one of the most obvious possibilities. Deposit arrangements may sometimes be negotiable as well, depending on the circumstances, and there may be other specific contractual provisions that matter to your purchase.
The key is understanding the difference between a request that changes the mechanics of the transaction and one that fundamentally changes the vendor’s certainty of sale.
A request for a longer settlement still means you are buying the property. A due diligence clause means you might not. That distinction matters enormously to a vendor.
One creates inconvenience. The other potentially gives the purchaser a way out of the contract. It shouldn’t be surprising which one a vendor is more likely to consider.
You May Not Be the Only Buyer Who Benefits
There is another important factor to understand.
Depending on the jurisdiction and how the auction is conducted, conditions negotiated before the auction may need to be made available to the successful purchaser rather than being treated as a completely private arrangement that applies only to you.
The process differs from state to state, so this is where your solicitor or conveyancer earns their keep.
Before you bid, make sure you understand exactly what has been agreed, how it will be documented and whether the variation applies specifically to you or potentially to whoever becomes the successful purchaser.
The phrase “the agent said it should be fine” is not quite the level of legal certainty you want when large sums of money are involved.
Ask the Question Before You Walk Away
Property developers regularly come across properties that almost work.
Sometimes the site is right, the numbers are right and the strategy is right, but one contract term creates a problem. It is easy to look at that term, assume it cannot be changed and move on to the next opportunity.
Sometimes that is the correct decision. But sometimes all you need to do is ask the question.
Could the settlement period be extended? Could the deposit structure be changed? Is there another relatively minor condition that could be varied without materially increasing the vendor’s risk?
The vendor can always say no, but there is very little downside in asking the question before ruling the property out altogether.
What you shouldn't do is use contract negotiation as a substitute for proper preparation. Due diligence still needs to be done before auction day, your finance still needs to be organised, and you still need to know your numbers before the competitive atmosphere turns a sensible $1.05 million limit into $1.14 million because someone in a linen shirt looked slightly too confident.
Auction day is not the time to discover the site doesn’t support your development strategy.
If there is one reasonable contractual issue stopping you from bidding, raise it early, have your legal adviser review it, and see whether the vendor is prepared to accommodate it.
You might get a no.
But you might also discover that the difference between sitting in the crowd and actually bidding for the deal was simply asking the right question before the auction started.
The property goes under the hammer, everyone bids on the same terms, somebody wins, contracts are signed and everyone wanders off either celebrating or wondering why they bid another $20,000 because a complete stranger raised their paddle.
For property developers, however, the standard auction format does not always fit quite so neatly.
That raises a question developers often ask: can you change the conditions of an auction contract before you bid?
Your strategy might require a longer settlement. You may need a slightly different deposit arrangement. There could be another contractual condition that would make the deal workable for you.
In many circumstances, depending on the state and the contract involved, the answer is yes. But there are limits.
What About a Due Diligence Clause?
If the question is, “Can I buy at auction subject to due diligence?”, the practical answer is generally no.
The whole purpose of an auction is to create an unconditional sale. The vendor wants certainty, and the auction process is structured around everyone bidding on a property knowing that, if the hammer falls in their favour, they have bought it.
That means your due diligence needs to happen before the auction.
For a developer, that could include planning controls, title restrictions, easements, services, development potential, likely construction costs, comparable sales, finance, market demand and, most importantly, whether the deal actually makes financial sense.
Similarly, conditions such as subject to finance are unlikely to fit comfortably within a traditional auction transaction.
But that doesn’t mean every term of the auction contract is necessarily set in concrete.
Some Auction Conditions Can Be Changed
In many Australian states, it may be possible to negotiate certain auction conditions before the auction takes place.
The important phrase here is BEFORE the auction. You don’t want to win the auction and then announce: “Excellent. Just one tiny thing. Can we change settlement from 30 days to 90?” That conversation probably isn’t going to go well.
If there is a condition that would prevent you from bidding, the time to raise it is while everyone is still calmly exchanging emails with the selling agent well before you bid. The request can then be referred to the vendor and their solicitor or conveyancer for consideration.
There is absolutely no obligation for the vendor to agree. But they might.
Vendors Actually Want You to Bid
This is the part buyers sometimes forget. The vendor wants as many genuine bidders at the auction as possible. An auction with six enthusiastic bidders tends to be more exciting for a vendor than an auction where one lonely person raises their hand and everyone else stares at their shoes.
If a relatively minor change to the contract allows another serious buyer to participate, agreeing to it may be commercially sensible.
Imagine there are three people prepared to bid to $1.2 million. One of them can’t participate because they need a longer settlement. From the vendor’s perspective, eliminating that bidder simply because they need 90 days instead of 30 may not necessarily produce the best result.
That does not mean the vendor will automatically say yes, but a request that creates relatively little additional risk may have a reasonable chance of being accepted.
And yes, the word reasonable is doing quite a lot of work in that sentence. Asking for the purchase to be subject to finance, planning approval, soil tests, a builder’s opinion, your accountant’s blessing and whether Mercury is currently in retrograde is probably going to be a harder sell.
What Might Be Negotiable?
Settlement terms are one of the most obvious possibilities. Deposit arrangements may sometimes be negotiable as well, depending on the circumstances, and there may be other specific contractual provisions that matter to your purchase.
The key is understanding the difference between a request that changes the mechanics of the transaction and one that fundamentally changes the vendor’s certainty of sale.
A request for a longer settlement still means you are buying the property. A due diligence clause means you might not. That distinction matters enormously to a vendor.
One creates inconvenience. The other potentially gives the purchaser a way out of the contract. It shouldn’t be surprising which one a vendor is more likely to consider.
You May Not Be the Only Buyer Who Benefits
There is another important factor to understand.
Depending on the jurisdiction and how the auction is conducted, conditions negotiated before the auction may need to be made available to the successful purchaser rather than being treated as a completely private arrangement that applies only to you.
The process differs from state to state, so this is where your solicitor or conveyancer earns their keep.
Before you bid, make sure you understand exactly what has been agreed, how it will be documented and whether the variation applies specifically to you or potentially to whoever becomes the successful purchaser.
The phrase “the agent said it should be fine” is not quite the level of legal certainty you want when large sums of money are involved.
Ask the Question Before You Walk Away
Property developers regularly come across properties that almost work.
Sometimes the site is right, the numbers are right and the strategy is right, but one contract term creates a problem. It is easy to look at that term, assume it cannot be changed and move on to the next opportunity.
Sometimes that is the correct decision. But sometimes all you need to do is ask the question.
Could the settlement period be extended? Could the deposit structure be changed? Is there another relatively minor condition that could be varied without materially increasing the vendor’s risk?
The vendor can always say no, but there is very little downside in asking the question before ruling the property out altogether.
What you shouldn't do is use contract negotiation as a substitute for proper preparation. Due diligence still needs to be done before auction day, your finance still needs to be organised, and you still need to know your numbers before the competitive atmosphere turns a sensible $1.05 million limit into $1.14 million because someone in a linen shirt looked slightly too confident.
Auction day is not the time to discover the site doesn’t support your development strategy.
If there is one reasonable contractual issue stopping you from bidding, raise it early, have your legal adviser review it, and see whether the vendor is prepared to accommodate it.
You might get a no.
But you might also discover that the difference between sitting in the crowd and actually bidding for the deal was simply asking the right question before the auction started.
