We look at how auctions work, your legal rights and answer readers' most frequently asked questions about buying and selling goods at auction.

How they work

To make a bid at an auction, you usually have to register and sign an agreement with the auction house. Make sure you read the agreement before the auction begins.

The sale goes to the highest bidder, but only if that bid has met or exceeded any reserve price. Once you have cast the highest bid, it’s too late to change your mind. You have entered into a legally-binding contract to buy the goods.

Goods will be "passed in", if they don't meet a reserve price. If this happens, and your bid was close to the reserve, the auctioneer may ask if you want to make another offer to the seller.

Legal requirements

Under The Auctioneers Act, auctions can only carried out by registered auctioneers.

The Consumer Guarantees Act and the Fair Trading Act both apply to auctions where the seller is a professional trader. The notice of the terms of the auction must state whether the seller is a professional trader.

Auction goods bought from private sellers aren’t covered by these Acts but they may be covered by the Sale of Goods Act, which requires products to be of merchantable quality. However, auction houses can opt out of that law (and usually do).

Online auctions

Goods bought from online auction sites like Trade Me are also covered by the Consumer Guarantees Act and Fair Trading Act but they’re not covered by the Auctioneers Act so don’t have to be carried out by a registered auctioneer.

Find out more about online auctions.

Buying

I went to my first car auction last week and I had to register and sign a bidder's agreement. What was that all about?

Registering as a bidder means you give the auction house your personal details and are given a bidder's number.

The auction house does this to keep track of the bidders during the auction. After each sale, the auctioneer jots down the successful bidder's number, then moves on to the next item.

All the conditions of the auction must be made clear to the buyers beforehand. If the auction house doesn't do this, you're not bound by those terms.

Usually, the conditions will be set out on signs and in your copy of the bidder's agreement. By signing, you accepted that agreement, so read it first!

Common conditions contained in such agreements include that the buyer must take away the goods that day at their expense, payment must be made by cash, eftpos or bank cheque on the day, and that a buyer's premium will apply.

What's a "buyer's premium"?

To make its money, the auction house charges the seller a commission on each sale. However, auction houses may impose a charge on buyers as well. This is the buyer's premium, also called a buyer's commission.

So, with that agreement you signed, if you buy something you must pay an extra fee on top of whatever you bid.

Before the auction started, the cars were on display. Is this the only chance you get to check them out?

No. Auction houses often hold inspection days before the auction day. They may also produce catalogues, containing details of the goods on offer.

If you read through a car catalogue before the big day, you will have time to get a vehicle inspected by a mechanic and even take it for a test drive before the auction.

If you want to get your own expert check, you will probably have to bring the expert to the auction site.

But what if I don't do that? Can I make my bid conditional on an expert check after the auction?

No. An auction bid is an unconditional offer to buy. If you make the successful bid, you've entered into a legal contract to buy the goods. You're committed.

Do I have any rights if I buy a product that turns out to be faulty?

Yes. Changes to the law mean the Consumer Guarantees Act now covers auctions.

If you buy goods for personal or household use at auction, and the seller is a professional trader, you’re protected by the Act. The notice of the terms of the auction must state whether the seller is a professional trader.

The Act requires goods to be of acceptable quality. The “acceptable quality” test is based on what a reasonable consumer would expect given the price paid, the age and condition of the goods, any information provided at the time of purchase, the nature of the supplier and the context in which the goods are supplied.

If you buy a stove at an auction that the seller claims is "in working condition", but when you get it home you discover the elements don't work, you have grounds for a claim against the trader.

Auction goods bought from private sellers aren’t covered by the Consumer Guarantees Act but they may be covered by the Sale of Goods Act, which requires goods to be of merchantable quality. However, auction houses can opt out of that law (and usually do).

Auctioneers are also covered by the Fair Trading Act. That means they can't say or do anything that misrepresents or misleads you about the goods on sale or the auction process.

In 1999, Christchurch Auctions auctioned off a range of lounge suites. Although the covering of the suites was a mixture of vinyl and leather, the auction house advertised them as leather, without mentioning the vinyl.

That was misleading. The Commerce Commission prosecuted, and Christchurch Auctions had to pay costs and fines of over $7000.

Can vendors bid on their own goods?

Yes, but only if the notice of the terms of the auction tells you that vendor bids are permitted. The auctioneer also has to identify each vendor bid and the goods must be offered for sale with a reserve price. The vendor bid has to be below the reserve.

I watched the auction, and the cars were selling at some pretty good prices. I'd love to take part, but I stayed in the background. I was frightened that if I scratched my nose I'd find myself owning an '82 Holden!

Don't worry: auctioneers know a genuine bid when they see one. You have to make a clear bid, and if the auctioneer isn't sure if you're just scratching your nose, they will ask.

They may also try to make the auction fun, in an attempt to loosen the bidders' wallets. They may cajole the crowd to make bids, crack jokes, and increase bids in smaller and smaller increments, playing bidders off against each other to get as high a price as possible.

Items for sale are called "lots". Once the bids for a lot get over the "reserve price" (the minimum price the seller is prepared to accept), a sign may start flashing: "Now Selling!"

If you're interested in buying at an auction, but find it all a bit intimidating, go to a few as an observer first. Get used to the atmosphere and watch how others behave. Join in once you've got some confidence.

Selling

Is it worthwhile selling at auction?

For general household items and cars, auctions can be a good, simple way to sell.

Cars, furniture and appliances are commonly auctioned, although more exotic items can also be auctioned.

To get the best price, make sure what you're selling is as good as it can be. Polish and clean the goods, and do any small repair jobs needed.

Second-hand dealers often buy at auctions. If they see items in good condition, they're more likely to bid higher, because they can put the pieces straight into their showroom, without having to go to the trouble and expense of cleaning and repairing them.

What does it cost to use an auctioneer?

The auctioneer will take a commission on the sale price, usually around 10 to 25 percent, depending on the goods being sold, plus GST. The commission may have a dollar minimum and/or include a flat dollar fee.

Commissions may be negotiable for very low or high value items, or for a large amount of items.

If you want the auction house to pick up the items from you (that old 3-piece lounge suite, for instance), the cost of this is usually deducted from the money made at the sale.

What protection do I have as a seller?

You'll be expected to sign an agreement covering all the sale details. Make sure you read and understand it before signing.

Common clauses in sale agreements cover the commission charged, other costs (such as pick-up costs and GST) and an assurance from you that you are legally entitled to sell the goods (that is, they are not stolen or security for a loan).

Beyond this, the auctioneer is bound by the Fair Trading Act. That means they can't mislead you in any way. Also, the services the auctioneer provides are covered by the Consumer Guarantees Act. This means auctioneers must provide their services with reasonable care and skill.

For instance, if the goods are damaged while in the auctioneer's care, they may be liable for the cost of this. However, the auctioneer's agreement may stipulate that you pay a small premium for insurance to cover this liability.

If you end up in a dispute with the auctioneer and they won't pay up, complain to the relevant professional association or take a claim to a Disputes Tribunal.

I'd like to auction off my old car, but I don't want it going for a song.

You can usually set a reserve price. If the car doesn't reach the reserve, it will be "passed in", which means it isn't sold.

If the highest bid comes close to the reserve, you may agree to sell at that price or to negotiate further with the bidder.

The auction house can advise you on a realistic reserve. But if the goods are unique, very valuable, or special in some other way, you may want to get an independent valuation to establish a reasonable reserve.

Be realistic. The auctioneer may decline to sell your goods if they think your reserve price is too high. And remember to factor in the auctioneer's cut: the reserve price will be a gross figure

My girlfriend recently inherited some antique jewellery from a great aunt in England. She wants to auction it off, but it would look pretty weird sitting next to 20 CD players!

There are specialist auctioneers around who can handle such jobs. Some concentrate on antiques, others on military memorabilia, stamps, coins, commercial products and the like.

Specialist auctions attract specialist buyers who have a particular interest in the unusual items up for sale.

Your girlfriend should check out the Yellow Pages, the internet and newspapers for some likely auctioneers. She might also like to contact the professional associations for guidance.

Auctioneers Act

Can anyone set themselves up as an auctioneer?

No. Those in the business of auctioneering must be registered. The registration system is administered by the Ministry of Business, Innovation and Employment.

Registration must be renewed each year.

The Auctioneers Act 2013 makes it an offence for a person to carry on business as an auctioneer unless they are registered. Individuals can be fined up to $10,000 and companies up to $30,000.