To the uninitiated, an auction is an action-packed, emotion-charged situation to walk into – especially if your reason for being there is to bid on your dream home.
Arriving unprepared is akin to throwing yourself to the lions. Popular properties go to auction for a reason. What appeals to you are the same features attracting everyone else.
The day is controlled by the auctioneer who, as a real estate agent, has just spent the last several weeks working hard to promote the property with one goal mind – to achieve the highest price by having as many people as possible competing for it at the auction.
If you’ve got your heart set on a house, nothing will test your nerves more than trying to win it under auction conditions. If it were easy, buyer agents wouldn’t be so popular. When a house sells at auction there are no contract conditions or cooling-off periods. You are there to buy on the day and must be prepared.
Here are a few tips to help you get organised and survive the adrenaline rush of auction day.
Practice makes perfect
Although auctions are a much smaller percentage of total property sales, it pays to prepare for the fact that you might be buying your dream home this way. So if your heart is set on a place, it pays to do the homework and not miss out. Importantly, don’t turn up to an auction cold-turkey if it’s your first time.
Attend other auctions beforehand to understand the process and lingo on the day. Every auctioneer has a different style that sets the tone of the auction. Bidders will use all sorts of tactics. Use these opportunities to get a sense of the local market and make contact with different real estate agents working in the area.
If they know you are seriously looking in the area, they will keep you informed of local patterns, properties that become available and level of buyer interest.
The seller will have set a reserve price which is the minimum price they are willing to accept. They are not required to sell below this value. This is only disclosed to the auctioneer and bidders are not aware of the seller’s price expectations.
This makes it harder to anchor the true value of a property that is being auctioned. It pays to research comparable property sales (auction or private treaty) in the area to understand the local market as best you can. A lot of this information is available free online.
More homework means more confidence and fewer nerves.
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Game day
The market is currently experiencing high demand in many locations across Australia. Bidding at auctions is fast and furious, resulting in runaway prices for many properties as people get caught in the emotion of the day.
Having an auction day game-plan will help you manage the competiveness and psychology of the process, staying calm and within budget.
Be seen and heard
Arrive early and view the property again. Ask questions and introduce yourself to the real estate agents. Make sure you register as a bidder.
Assert your presence and visibility by dressing appropriately and standing at the front of the crowd during the auction.
Keep calm, control your body language and look confident and organised. It’s essential that others perceive you as a serious contender for the property.
Control the tempo
As a rule-of-thumb, it’s likely the auctioneer will open the bidding around 20% below the reserve price. You may choose to exert your influence by bidding early, or wait until the property is officially on the market i.e. reaches reserve price.
However, keep in mind that if the property is passed-in the highest bidder will be invited to negotiate a sale privately. If you are really keen on a house, it may pay to bid earlier and not lose the opportunity to negotiate.
Bid loudly and in whole numbers, not just the incremental increase. Vary the scale of your bids to control the pace.
For example, large bids can be used to knock-out the competition or smaller bids can be used to slow momentum if things are moving quickly.
The auctioneer sets the amount by which bids can increase. It’s OK to make a smaller bid but the auctioneer reserves the right to reject a bid, if they feel the auction is moving quicker.
Proxy bidder
If you are showing signs of emotion, you will be targeted by the real estate agents and auctioneer.
To detach yourself from the process and take away the emotion, it is appropriate to use someone else that is independent such as a buyer’s agent or other experienced, trusted person. You will need to confirm prior to the auction that this person is legally acting on your behalf.
Reserve price
The seller will have set a reserve price which is the minimum price they are willing to accept. They are not required to sell below this value. This is only disclosed to the auctioneer and bidders are not aware of the seller’s price expectations.
If not already announced, a good tactic is to occasionally ask the auctioneer if the property is now on the market. This signals to others you are a serious contender.
The auctioneer may halt the auction at any time to discuss progress with the seller, particularly if the situation is slowing but bids are near the reserve price. The auctioneer will either confirm the property is ‘on the market’ and will be sold to the highest bidder. Or, the auctioneer may make a ‘vendor bid’ on behalf of the seller to push things along.
If a property is passed-in, it is passed to the highest bidder who is invited to negotiate privately with the seller.
Devil in the detail
There are no ifs or buts after an auction. A property sold at auction is settled on the day with no conditions, meaning all due diligence needs to be completed well before time. You will also be asked to pay a 10% deposit.
It is costly and messy to break a contract after an auction.
Consequently, all necessary checks and questions need to be carried-out prior to auction day including any independent building inspections.
Do not wait until auction day to ask the real estate agents any technical questions. This information should be answered beforehand.
Read the sale contract thoroughly prior to auction and seek any legal advice required.
Using your earlier research set a realistic budget prior to the auction and stick to it on the day. Use an unrounded number as your highest predetermined limit. If others are bidding in rounded numbers, knowing you can spend an extra say $2200 may win the house.
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Have fun
There is always a degree of uncertainty about auctions which is challenging, especially if you’ve found ‘the one’.
Many people either get overwhelmed and stop bidding early, or get caught-up in the moment and overspend.
Being financially prepared, comfortable with the auction process and knowing the local property market can mean the difference between a nerve-wracking or highly rewarding experience.
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