The auction at 342 South Dowling Street was held on Wednesday evening at the Ray White Woollahra and was attended by 80-100 people with 20 registered bidders.

Auctioneer James Kerley, who settled the hammer at $1,525,000, said the sale really kicked off at around $1 million with 10 active bidders.

"This auction was very competitive and one young gentleman knocked everyone else out with a final bid of $20,000," he said.

"It was a unique terrace, completely uninhabitable and in disrepair."

Mr Kelly said the owner, an elderly gentleman, became agitated after the sale.

"It made it all worthwhile," he said.

"The gentleman has owned it for 30 years and he said the sale would change the rest of his life."

The terrace was one of the original built in the Paddington area but has been neglected for years, with walls, roof cavities and floors in desperate need of repair, a ladder connecting the two floors and old furniture throughout.

The listing describes it as a "best blank opportunity" for a creative person to build a dream home.

Ray White agent Augusto Gerocarni said both owner and buyer were "ecstatic" about the sale.

"It was a great result, sold to a young man who wanted to build a terrace for himself," said Mr Gerocarni.

"He saw the vision."

According to CoreLogic property records, the property was last sold in April 1992 for $182,000 and its first recorded sale was in October 1985 for $4,300.

Paddington has recently been included in a list of some of Sydney's more affordable suburbs, compared to their neighbours.

According to research by PropTrack, buying a house or unit in Paddington is approximately $2.2 million cheaper than buying a house or unit of a similar nature in Double Bay.

It was a successful night for Mr Gerocarni, who also sold 685 South Dowling St Redfern for A$4 million.