Despite the fear buying at auction strikes into the hearts of home buyers, it is the preferred form of sale in many Sydney suburbs and sets a definitive market price.

For purchasers, the main benefit of an auction is that it's a public forum which gives them a chance to compete and beat all other contenders.

"When you go to auction you know the highest bidder will be the purchaser and there's no chance of gazumping," says Chris Fitzpatrick, president of the Real Estate Institute of NSW.

"It also takes concern about the value off the purchaser's mind. You know the value of the property. You know someone else will pay $1,000 less than you paid."

Some people are even pleasantly surprised by buying at auction when they pay less than expected.

Fitzpatrick says a vendor recently sold for $666,000 and was very happy, while the person who bought would have paid up to $700,000.

Dummy bidders are one of the possible hitches of buying at auction. Their job is to up the price of a property so real bidders pay more.

"I don't think you can deny it exists, but it's not as prevalent as is generally perceived," Fitzpatrick says.

"I think it happens in a minority of cases. They [purchasers] can see the other people bidding. They can see the emotion on their faces."

Certainly, auctions seem more competitive for buyers than ever.

Sue Boyd at Nationwide Mosman says: "A year ago, you would go to an auction and find you were bidding against two, maybe three others. Now, you go to an auction and you're most likely to be bidding against four or five people."

Despite this scenario, dummy bidding is an entrenched part of real estate culture. Agents often use the same dummy bidders each week, so it pays to visit a few auctions of local agents. The imposters give themselves way by bidding on everything from $300,000 to $3 million.

If you do happen to bid against a dummy bidder, and he or she makes the last bid before the property is passed in, the agent will be very interested in negotiating with the next highest bidder.

Lawyer Barry Beilby, of Beilby Poulden Costello, says he prefers private treaty over auction for his purchasing clients. "From a purchaser's point of view I think auctions are tougher," he says.

One of the major drawbacks is the possibility of overbidding: "The sheer excitement can carry your bidding away beyond your anticipated budget."

The auction room is not a place for unbridled passion.

Beilby advises setting a budget and sticking to it. "There are two budgets: what the property is worth and what you can afford ... You have got to be able to walk away."

Fitzpatrick agrees: "Auctions raise the chances of an emotional decision on the day. Set a budget, but be realistic. You might set a limit of $500,000 but $500,001 would buy it. Be conscious of the effect increasing your limit will have on you. Will it make it difficult to repay the loan? You should set a range: an ideal price, a preferred price and a premium price."

Beilby says another potential drawback is spending money on researching a property that you miss out on. "You can waste a lot of money on pre-inspection searches and find you're not the highest bidder. I've seen people spend $600 or $700, only to find they were unsuccessful at auction."

But Fitzpatrick says buyers should still do their homework. "Don't short-cut on things like the building inspection. Even if you have a friend who is a builder who can look over the property, it's well worthwhile."

Beilby also advises buyers to ensure their contract of sale is checked by a lawyer before auction.

"In particular, such matters as survey, position of sewage lines and zonings."

A survey is crucial, he says. "It identifies any improvements, whether they are council-approved; whether they are within the boundaries ... If you find there are problems after the auction, you've already paid 10 per cent. The wheels are in motion. It's better to clarify before you exchange contracts."

Beware the mystery bidder

Reforms proposed by the Department of Fair Trading (DFT) look set to stop phantom bids at auction. A

nyone planning to bid at an auction will be required to register with the selling agent. Misleading starting prices for auctions will also be prohibited. The move was initiated by the DFT after real estate complaints rose from 1,040 in 1999-2000 to 1,324 last year.