Getting a little carried away on an eBay auction may not put you in too much trouble, but getting a little carried away at a property auction can place you under significant financial stress. There are a number of mistakes when setting bidding limits for an auction, but luckily if you avoid these common pitfalls, you can be assured that your competitive spirit won’t get the better of you (or your wallet).
Avoid stretching yourself too thin
There are many hidden costs of buying a home. Forgetting these when setting bidding limits is a common mistake. Remember to account for the legal costs of buying a home, moving day costs, pest inspections, financing costs and insurance. Once you have taken everything into account, you may find that your bidding limit is up to $25,000 lower than your initial estimations.
Stretching your finances too thin early on reduces your initial cash flow (right when you need it most), and places you further at risk from market influences, such as changes to interest rates.
Consult those around you who you trust, such as your accountant, financial advisor and your family to decide on an exact bidding limit. Don’t go it alone as if only you know about it, the more likely you are to break your own rules.
Don’t aim too high
Everybody wants their dream home, and who can blame them? But there is a reason it is called the property ladder. Make sure you target your research efforts towards properties that are well within your means. How do you know how high you can go?
Firstly, your finances will give you a pretty clear idea, and so will your financial advisor. However, there is one more step that will help narrow your search parameters: make a list.
List those aspects of a home you need and those that you are willing to sacrifice on. Luxuries such as the size of your backyard may give way to more useful and important aspects, such as vicinity to public transport and schools. Being realistic and thorough with this exercise will help you set realistic bidding limits.
Get to know how an auction works
It is important to know that various techniques auctioneers will use to try to drive an auction forward, or bidders will use to keep the price down. For instance, knowing that some bidders will come into an auction strong at the start in an attempt to scare off less experienced bidders will place you in better stead to take your time. Knowing these sorts of techniques beforehand will help you set a realistic bid limit, and more importantly, stick to it. Early high bids or very late bids are intended to play with the emotions of any other competition. Knowing this will help you keep your cool.
Do your research
Researching the market you are trying to tap into as well as the larger market in general will help you set realistic bidding limits before auction. It is important to set your limits based on research and a thorough understanding of the market, not gut feels. Your instincts do play a role in finding homes, but should not place you $50,000 further in debt than you initially planned.
Practice your skills
It might be unwise to start putting your hand up at multi-million dollar auctions if that isn’t your limit, but practicing your bidding can simply mean attending as many auctions you can and imagining where in an auction you would begin bidding and how this would affect both your heart rate and the auction.
Do you notice people bidding against a competitor to then consult one another before then bidding again? They are most likely exceeding their initial bidding limit and breaking their own rules. This gives their competition a strategic advantage. Never giving your limit away during the auction is key to keeping that price down. Be assertive until your very last bid. Nobody else knows what your limit is so you may just find you win the auction at the ceiling of your bidding limit.
Setting a round number limit
Why would you set your bidding limit at $600,000 if you know that it could comfortably sit at $615,000? Most people never question why they set their limits at round numbers, such as $600,000 or $650,000, it just feels natural to them. However, a more specific and less common limit will most likely feel more real to you during the heat of the moment at auction.