This week has been another big auction week in Melbourne and around the country. If you are preparing to snap up your next home, it is an exciting but incredibly daunting time. To help calm your nerves Michael Yardney has put together his best tips for buying at auction.
We all know that many home buyers or investors are a little intimidated by the thought of bidding for a property at auction. It is understandable why auctions are an emotional and exciting event. Even after bidding at hundreds and hundreds of auctions Michael Yardney admitted he still gets that surge of adrenaline every time he bids.
Then of course there’s the lead up to the auction with all the suspicion surrounding what the vendor really wants for their property, is the agent quoting a realistic price? How much competition will there be? Or the heartbreak of falling in love with a property just to be outbid by someone with deeper pockets.
But if you avoid properties that are up for sale at auction, you’re going to miss out on a lot of good buying opportunities as many of the best properties are offered for sale by auction, particularly in Melbourne and Sydney.
Why you should like auctions
Yardney believes if you’ve got a good property for sale the auction process is usually the best way to sell it and on the other hand auctions are the most transparent way to buy property. It is good to know who else is interested in the property and what they’re prepared to pay. It is also good to see your competition at an auction try to read their body language, watching for the signs that they are close to their limit.
Preparation is key
If you’ve done your pre-auction due diligence, such as getting your finance in order, checking the contract and prices and determining your maximum price, you can then just consider the auction as the venue where you execute the decision you’ve already made.
Of course you could always make an offer prior to auction, but in today’s sellers’ market, you risk paying more than you need to. You can also authorise someone else to bid on your behalf. Choose someone you trust who has some auction experience or hire a buyer’s agent – that’s their business. Remember, buying at auction is an unconditional sale so here’s how you should prepare:
Pre-auction must do’s
- Have your purchasing entity organised (for example a trust or self-managed super funds) if you are not buying in your own name.
- Get finance pre-approval so you know your budget and attend the auction ready to write a deposit cheque.
- Attend lots of auctions to experience the atmosphere and observe different bidding strategies. In particular watch the auctioneer who’ll be selling the property you’re interested in to learn the particular techniques and the words they use.
- Do your research by inspecting many properties and seeing what they sell for (not just the asking price). Know the market, know the value of the property in question and be armed with that power so you can identify a ‘walk-away’ price – the highest price you’re prepared to pay.
- Play your cards close to your chest. Tell the selling agent you’re interested in the property but reveal very little about how much you might pay.
- Show your solicitor the contract and organise any amendments to the contract they suggests prior to auction day.
- Consider getting an experienced buyer’s agent to bid on your behalf and level the playing field.
What to do on the day
- Arrive early – survey the landscape – see who else is there.
Do they look like serious bidders (they’re inspecting the contract, saying the right things) or are they just onlookers?
- In today’s strong auction climate use the psychological advantage of projecting confidence – make the other bidders think you have deep pockets and no limit.
- Open the bidding high, close to where you think the reserve will be (the property won’t sell below this) and make your bids fast and assertive.
Procrastinating or agonising over your next bid is a sign of weakness.
- Call out your offer in full (in other words say $550,000 instead of the increments just $5,000).
- If it’s going to pass in, make sure you are the highest bidder, as this allows first right to negotiate with the vendor.
- Be prepared to miss out. Stick to your ‘walk-away’ price.
After all you’ve done your homework and you know what this particular property is worth to you.
If you miss a property at auction, accept that it wasn’t meant to be and look forward to finding something better soon.
While no one likes to consider themselves the ‘loser’ in any sort of negotiation campaign, it’s far better to walk away and live to fight another day than over-commit to a property you’ve become emotionally blinded by.
Author: Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.