There's an art to not only winning an auction but making sure it happens within your budget according to property expert Veronica Morgan.
Let’s face it, there aren’t many property buyers who like going to auction. Because even if you’re confident at public speaking, and don’t mind the performance aspect, you’ll no doubt be worried about being outbid. Or, worse still, you could get carried away and end up paying way too much.
The main purpose of an auction is to get the seller “just a bit more” which means the buyer can come away somewhat shortchanged especially if there are loads of other bidders. However, if you stick with these tips you can make the process much easier and far less stressful.
Before you go to auction
1. Assess how much the property suits your needs
In the lead-up, figure out how uniquely this property fits with your needs and how much you want to buy it. Forget about all the other potential buyers, the vendor and what your mother might be saying to you about it. This is about you and the property.
2. Determine the property’s overall appeal
Ask yourself if the property is in a good location, whether it is a sought-after type of dwelling and whether it has future buyer appeal. Even if you love the place, if no-one else does, as the years go on you could wind up with a real lemon. You always want to secure a place that will grow in value should you decide to sell.
3. Do pricing research
It’s crucial to do prior pricing research. Look at recent sales in your area of similar properties and rate them against the one you want to buy to get a clearer idea.
4. Ask yourself, how much do you really want it?
Remember your emotions will run hot during the auction so it’s best to really test yourself before FOMO (fear of missing out) takes over on auction day. So assume you do miss out. Will you be utterly devastated? Or will you be okay to wait for something else to pop up? Also if you only consider how much you want this property and nothing else, you really do run a risk of paying far too much. I’ve seen people set a limit at auction with no real regard as to whether the property’s actual worth that much or not
5. How much can you actually afford
Make sure you’ve asked your broker or lender ahead of time exactly how far you can stretch yourself. Remember, banks are really tightening up on their lending practices and buying at auction means no cooling off period. Also, do some honest sums and work out how much money you need to live on per week and whether the mortgage at your top bid is sustainable. It’s helpful to imagine the day after the auction. If you bought a property you liked at top dollar would you still feel really happy or sick about the price? You really do not want buyer’s remorse the next day.
6. Set your limit
Auctions tend to be more common in higher density cities where there is often more competition for housing stock. If you’re in one of these areas, the best way to protect yourself is to set your limit - your maximum bid - before you go to auction. Remembering your limit can spur you on if you’re in danger of freezing in the spotlight when you actually have more in the tank. It can also make you less likely to overstretch yourself.
On auction day
1. Have a clear idea of your budget
Knowing what the property is worth to you and how much you can really spend is the golden rule. Do not deviate from this and chances are you won’t get drawn into a bidding war that will result in you overpaying.
2. Try being the first bidder
This goes against conventional wisdom which says not to bid until the property is called “on the market”. I feel you have a better chance of controlling the auction if you start it with a strategic bid. People will know you mean business. Also, bear in mind not all auctioneers will call the property “on the market”, so you need to be careful that you don’t miss out.
3. Stare down your opposition
A confident stance can do wonders in out-psyching other bidders and make them think you have bottomless pockets. I see many would-be buyers stop bidding prematurely and give up because they believe the other bidders will stop at nothing.
4. Don’t focus too much on other buyers
If you become caught up in "the race" with other buyers you run the risk of buying a property purely because you can, because you want to win. In other words, not because you really want it, or not because you really wanted to pay that price!
What to do if a property passes in
With clearance rates dropping there will be more chance of auctions not reaching the reserve price. So what do you do if you are the highest bidder and the agent is encouraging you to increase your bid? It all comes down to what the property is worth. We often try to negotiate a deal then and there, but only if the ultimate price represents good value. If the vendor is holding out for too high a price, then it is worth letting the property pass in and negotiating afterwards.
But don't think you're the only interested party. One thing you need to know is that the highest bidder’s right to exclusive post-auction negotiation is only a courtesy. The agent and vendor are able to negotiate with any interested party once the property has passed in. They will usually offer the highest bidder the first right of refusal, however, there may be other parties suddenly making offers. By leaving the negotiations until after the property has passed in, some vendors harden their stance and a good buying opportunity may pass you by.
Remember, people get into competition at auction all the time, and the odds are can be stacked against you, so be careful. Use these guidelines and you’ll have the best chance on auction day.
Veronica Morgan is the principal of Good Deeds Property Buyers, co-host of Location, Location, Location Australia on Foxtel and co-host of The Elephant in the Room property podcast.