Buying property? Here's how to pay a deposit at an auction

Buying a house at auction can be an exhilarating experience. After carefully budgeting, shopping the property market, and comparing home loans, you’ve finally nabbed your dream home. But when the auctioneer waves you in to finalise the home sale, what do you do?

If your auction bid is successful, you’ll be required to sign the contract and hand over the home loan deposit on the spot (usually at least 10% of the sale price), so it’s essential to have a plan. 

Here are your five options for paying a deposit at an auction.

First, some housekeeping. Before a property auction, make sure you have a few matters sorted ahead of time. Namely:

• Enough money for at least a 10% - 20% home loan deposit. 
  
• Home loan pre-approval (also called conditional approval).
• A solicitor or conveyancer on hand to assist.

Before the auction, ask the real estate agent or vendor which payment methods they accept. Most will be flexible, but some will be strict. Be prepared to meet whatever requirements they have on the day.

It’s also wise to have a backup payment option in case one goes wrong. After all, not paying the deposit after winning the bidding war can be disastrous!

When everything’s in order, it’s time to bid at auction.

Online transfer

These days, an online banking transfer (sometimes called an electronic funds transfer or EFT) is the most common way to pay for a deposit. 

Some banks, like Macquarie Bank, even have dedicated mobile apps for securely and digitally paying deposits after a successful auction. 

While online payments can be super easy, you’ll need to ensure your nominated bank account has the deposit funds available and your daily transfer limit is sufficient. If it isn’t, you can apply to have your daily transfer limit raised.

Personal cheque

While it might seem quaint nowadays, paying a deposit with a cheque is still standard practice at plenty of auctions around Australia. 

A personal cheque is simply the hardcover version of an EFT. You fill it out with the correct details, tear it off the booklet, and hand it over to the solicitors. The funds will then be drawn from your account when the other party deposits or cashes the cheque.

If you’re young (congrats!) and don’t know how to write a cheque, here’s an example of what one looks like and how to fill it out:

You can usually purchase a unique chequebook through your bank. However, keep in mind that many banks have stopped providing personal chequebooks for customers.

Bank cheque

Another hardcopy option is a bank cheque (sometimes called a “counter cheque”). This cheque draws funds directly from the bank instead of your personal account. To cover the costs, you transfer the equivalent amount to the bank beforehand, usually at the time of purchase. 

You can purchase a bank cheque online or in person at the branch. You’ll also need to pay a small fee (typically around $10).

Think of a bank cheque as fancy cash: its value is determined beforehand, and you just hand it over to complete the sale. 

However, conditions apply to bank cheques: they must be filled out correctly, can only be used for their intended purpose, and you cannot change their value. Since the bank prewrites the cheque with your maximum deposit, you won’t be able to stretch your budget at auction and could potentially get outbid. 

On the flip side, this price inflexibility makes bank cheques useful for preventing impulsive or emotional bidding. As another bonus, if the bank cheque exceeds the deposit required for the finale sale price, the extra money will go towards your new home. 

If your bid doesn't win, however, you’ll need to make a new bank cheque for each auction you attend – and those $10 purchase fees can add up quickly.

Deposit bond

Also known as a deposit guarantee, a deposit bond is a legally binding insurance policy you give to the vendor. Instead of paying the deposit now, it says you’ll pay it at settlement. This gives you some more time to prepare financially for the purchase. 

Much like a bank cheque, you’ll need the bank’s help to draw up the deposit bond document. On the bright side, the bank leaves the property and vendor’s details blank, so you can use the same deposit bond at multiple auctions till you win.

However, not every vendor will accept a deposit bond, since they may need the money from the sale to purchase a new property themselves.

You will also need to check with your real estate agent, because some may prefer to receive their commission from the deal ASAP: no deposit, no commission. 

Cash

Sometimes cold, hard cash is a reliable alternative. While not all vendors will accept cash for a deposit, some might. Ensure you have a secure method of transporting the notes before and during the sale. 

You will also need to get approval from your bank to withdraw cash amounts over $10,000, since this number triggers most fraud prevention alarms in their systems.

Jumpstart your auction journey with our home loan comparison tool. Browse low interest rate home loan offers below.