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Auctions can be daunting, and it can be hard not to get caught up in the bidding frenzy. Here are our tips on how you can win at a property auction.
It’s the most wonderful time of the year – for the auction market, at least. Spring has arrived, which usually represents a peak period for auction sales in the Australian property market.
In fact, CoreLogic data shows that each spring over the last few years has seen at least one month where over 3,500 auctions occur – that means an average of over 115 properties going under the hammer every day
And while there is no foolproof formula to come out on top during auctions, there are ways to maximise your chances of winning when bidding for your dream home or that investment property that you’ve been eyeing.
Here are tips and tricks to help you get to the front of the line with your auction bids.
How to prepare for real estate auctions
Failing to plan is planning to fail. According to experts, one of the biggest mistakes buyers make is not doing enough prep work before the auction even occurs. Here is some groundwork you can do before going into the actual auction.
1. Learn everything you can about the property
You’ve got your eyes set on a property? Now it’s time to do your due diligence and do your research. Start asking questions such as:
If the property is listed online, you can also check out the competition and check how much interest the property is gaining through views and clicks on the listing.
During your research, don’t forget to check for the building and pest inspections and a solicitor’s title search so you won’t be in for any unwanted surprises that come with the property. It’s also recommended to attend tours (even virtual ones) to make sure you have a glimpse and feel of the property.
2. Know the market
As well as knowing the property, it’s also crucial to have a deeper understanding of the particular market you’re wanting to buy into. Look into how much the property is potentially worth through comparable sales in the same area.
In some states and territories, the property’s auctioneer may be able to offer you this information. For example, in Queensland, an auctioneer can provide you with a comparative market analysis, but only with the property seller’s permission.
If you’re planning to have an independent valuer look at the property, make sure that the valuer understands the local market well. It also never hurts to ask local real estate agents to find out what other similar properties have sold in the area recently and for how much.
This can help you know how much you should be prepared to pay and also prevent you from overpaying for the property.
3. Set a budget
One of the biggest mistakes buyers make at an auction is not setting a maximum price they can afford to pay and sticking to it.
We understand that property auctions are exciting events and the adrenaline rush can easily kick in – especially when you think you are close to winning property you’re really keen on.
But when you buy a house at an auction, there’s usually no cooling-off period, so before you raise your hand to bid, you need to know how much money you can afford to offer.
If you think you’re likely to get carried away by the high octane and competitive environment, there are a couple of simple things you can do that can bring you back to earth.
For example, you can write your budget on your hand or hold a note with your budget. Some experts recommending having three thresholds in your budget:
Another is arranging to have a trusted companion by your side during auction time who will keep you grounded on your offers. You can choose to have a buyer’s agent bid on your behalf but it could also be a family or trusted friend that you can rely on to intervene if they see you’re bidding beyond your stated upper limit.
It’s also essential to have your finances organised before the auction. Most auctions require that you put in the deposit on the day of the sale. This means you'll need to get your financing together before the auction takes place since there's usually a tight turnaround time.
If you know the estimated value of the property you’re interested in, make sure to have at least 10 per cent or 20 per cent of the sale price of the property so you won’t have to forfeit the sale in case you win.
If you’re purchasing a property with a home loan, make sure you understand your borrowing capacity. Some buyers choose to have their pre-approval in place before going into the auction.
There is a fine line between confidence and foolishness during auctions. In the heat of the moment, it’s easy to go beyond that line. Remember that there’s no shame in walking away if the bidding goes beyond your budget. And ask yourself, if you pay for more than what the property is worth, did you really win?
4. Familiarise yourself with the property auction process
The involved theatrics, psychological games, and the ins and outs of the real estate auction process can be overwhelming for some people, which is why it’s a good idea to learn as much as you can, as soon as you can.
One way to familiarise yourself with the process is to simply attend other auctions. Just remember to stay out of other bidders’ and auctioneers’ way if you are not planning to bid.
Attend as many auctions as you can, and if possible, attend those that will be held by the same person or firm who’ll auction off your chosen property. And with the rising popularity of online auctions these days, you won’t be limited to just attending face-to-face auctions. This way, you can get an idea of their auction strategies and habits.
It’s also a great way to observe other buyers’ auction bidding strategies to see what seems to work well, and what doesn’t.
5. Have a bidding strategy ready (and stick to it!)
One recipe for disaster is to walk into an auction without a plan, especially if you’re a new kid on the block.
While everyone has their own way of doing things, you will need to find a strategy that will work best for you and stick with it.
More than anything, confidence is key. Indecisiveness can be sniffed out by your rivals, making your bids less threatening and meaning you risk lagging behind if a bidding war happens.
Your instinct is also a vital tool during auctions. If you want to know how to win a property auction, you should know when to bid. For some, bidding early gives them success. You can increase pressure by coming in with a large bid from the very start to knock out the competition. However, this strategy comes with a risk, as it can push the sale price beyond your budget.
Alternatively, some choose to wait until the auction nears its end to enter their bid. This can catch the leading bidder off guard. But if you’re not quick on your feet, the auctioneer may end the auction and confirm the sale before you even had the chance to make a bid or make your interest know.
Ultimately, when auction time comes, you will need to read the room and determine which tactic works best for you.
Tips on how to win at real estate auctions
You’ve done your homework and now it’s time for the big event: the auction. Here are some basic tips to help you make the winning bid.
1. Be strategic with your first bid
Your first bid can make a big impression.
For example, if you start with a low bid and too early, there’s a risk you will offend the seller. While this may not sound concerning to you, it will be a problem if you find yourself in negotiations with the seller should the auction not meet the reserve price (the price stipulated as the lowest acceptable by the seller for the property). A seller who is insulted may not be willing to negotiate with you because they think that you haven’t taken the auction seriously.
To be on the safe side, make sure that your first bid is a strong figure that reflects the market value. Every serious bidder at an auction will have a clear idea of what the property is worth and will have come to prepare the right price; your first bid should reflect you have similar intentions. You can choose to start near where you want to end and that way you knock out a lot of the low bidders immediately.
The timing of your first bid is also important. Some experts recommend letting the bidding start and move in at a later stage with a stronger bid. This gives you an opportunity to size up the competition and also weed out those who are bargain hunting.
2. Don’t fall for psychological tricks and check body language
Any experienced auction goer will tell you that mind games are part of the real estate auction process. Auctioneers, especially seasoned ones, have a few or more tricks up their sleeves that are meant to encourage further bidding.
Keep your emotions in check to avoid getting carried away (like making another bid after you have reached your budget limit) during the auction. Try not to express your emotions, as doing so could signal to the other bidders what you’re thinking.
Body language is also an important thing to look out for during auctions. Your competitors, as well as the auctioneer, will be looking at how you act throughout the auction. For example, making a phone call during bidding could indicate that you’ve hit your budget limit.
Use body language to your advantage as well. Look for signs of hesitations or doubt or long chats with buyers agents to help you establish if your opponents are near their limit or they’re in for the long haul.
It’s also important to keep an eye on the auctioneer. Watch the interactions between the auctioneer and the seller (or the seller’s agent) to get an idea of how the auction is going from their perspective – whether the reserve price is about to be reached or if the property is likely to be passed in.
3. Be quick and confident
If you’re going to counterbid, raise your hand quickly and decisively. It will let people know you are serious. It will also help you identify who your competition is. It will also prevent you from falling behind your competitors.
4. Think about the figures
Most industry experts advise against placing bids of odd numbers. For example, if you bid $749,500, it’s easy for competitors to go the extra $500 (if it’s within the bidding increments set by the auctioneer).
This is why it’s usually advised to bid with an even number. In case your opponent tries to slow down the bidding pace with small increments, go in above them with that extra 500 or so, to immediately get ahead.
But what if my competitors are already employing this strategy? Because auctions involve a lot of mind games, going against convention can also throw your rivals off their game.
When an opponent throws in what they assume is a killer blow with a new high round number bid, you can choose to just go over this in small increments, even if it’s not a rounded number. It can simultaneously lower their morale and put you back among frontrunners without going over your budget.
Just remember that if you’re going to use this technique, don’t overuse it and be strategic with how you outbid. This can be used when you want to factor in unpredictability and keep other bidders on their toes.
When done correctly, auctions offer a good opportunity for making money in the real estate market. With these tips in mind, you should be one step closer to securing the perfect property at the right price come auction day.
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What unforgettable auction experiences have you had? Share in the comments below!
An investment property refers to a land, condo unit or building purchased to earn profit through rentals or capital appreciation.