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

Collage of a hand accepting keys to a house they just paid the deposit for.

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.

How to prepare before the auction

Collage of people running to a vacant house and an auctioneer.

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.

Payment methods for a housing deposit

Collage of hands shaking after a successful housing deposit payment.

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:

A Mozo brand example cheque filled out with all the correct example info.

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.

FAQs about paying deposits

How much deposit do I need for an auction?

In Australia, the standard is to pay at least 10% of the final sale price as a deposit at auction. However, having a bigger deposit (20% or more) not only gives you an edge, but it can also lower the cost of your home loan.

A 20% deposit means you have an 80% loan-to-value ratio (LVR). This tier usually gives you sharper interest rates, since it gives you more security in the loan. A large deposit tells the lender you're a safe investment.

Do auctions have cooling-off periods?

Unlike private or off-market sales, auctions don’t have cooling-off periods. A cooling-off period usually lasts a few days and lets you pull out of a sale contract.

However, if you successfully bid at an auction, you’ve entered a binding contract to buy the property, so a cooling-off period doesn’t apply.

What happens if you can’t pay the deposit at auction?

If you don’t pay the deposit or pay late after a successful auction bid, you default on your contractual obligations as a buyer. This can have serious legal and financial consequences and you may lose your deposit.

Talk with your solicitor or conveyancer about your options, as you may be able to apply for an extension.

Can you pay for a house deposit with a credit card?

Vendors will not and should not accept credit cards as valid payment methods for a deposit.

The point of a home loan deposit is to create security for your home loan. Paying for a deposit with a credit card creates interest on the only interest-free part of your home loan (i.e. the deposit) and buries you in more debt. 

Always consult a financial advisor before making big decisions like purchasing a home, including the best ways to pay your deposit.

Are home auctions cash only?

Auction vendors will usually have several acceptable methods of paying for a housing deposit: this includes EFT, cheque, or cash.

If you are thinking of bringing cash to an auction, talk to your bank and make sure you have a secure way of transporting it.

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

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