Buying at Auction
All around Australia, weekend property auctions have become almost a national pastime. People go along to have a sticky beak, to get an idea of the market, to fantasise about their dream homes or just to watch the street theatre unfolding before them – it’s a bit like watching buskers, you see an auction and you just have to stop and gawk awhile!
This year’s runaway property markets have seen auctions as an ever-increasing method of selling properties in Australia with a dramatic rise in the number of properties being sold by auction and an increased number of bidders vying for these properties.
While traditionally favoured for premium and inner-suburban properties, auctions have now spread to the middle and outer suburbs, as vendors grow to recognise that they can be the best way to maximise the value of their home in a rising market.
For all their street theatre and entertainment value, auctions represent a lot of stress and a lot of tension for those involved. Whatever the result, you can be sure that pressures will reach boiling point with so much money at stake which means that buyers, sellers and even agents will have a tough time keeping their nervous energy and emotions under control.
Given the circumstances in this emotional cauldron, it’s hardly surprising that a common mistake many purchasers make is the way they bid at auction.
Most purchasers hate auctions because of the pressures they put them under to make quick decisions, but it must be recognised that the sometimes unpredictable nature of the beast means auctions can produce real bargains.
One of the advantages of buying at an auction is that you can see your competition. If the property reaches its reserve or is ‘put on the market’, as they say, you’ll have a chance to see what the real market value is. Sure multiple bidders may push the price up because they become emotional about the property, but that’s the market talking.
Conversely, with a private sale you’re flying blind. You don’t know how the rest of the market views the asking price, or what price other buyers are considering, and even if you’ve done your homework there could be a difference of 5 per cent to 10 per cent in your perception. If you think a property’s worth $450,000 but everyone else thinks it’s only worth $410,000 you could effectively pay $40,000 too much!
So if you’re looking at buying a property it’s important to understand about buying at auction because if you’re the successful bidder on the day, you are legally bound to buy the property.
So, to help you be prepared, let’s take a look at the auction experience.
Currently many auctions attract large crowds with multiple bidders and the emotions on the day often push the final price way above the “quoted” expected selling price range.
One way to avoid this is to simply try and buy the property before it goes to auction.
If you plan to bid at auction it’s critical you do your research thoroughly before the day and be prepared, so here are 5 tips to help you buy well at auction:
1. Work out what the property is worth and what you’re prepared to pay
Research recent sales, talk to agents, explore the neighbourhood and speak to neighbours.
Use your research to set yourself a price limit and stick to it! Once you’ve set your limit, never bid above this price. You might have your heart set on that home and feel you have to have it, but there’s no point getting in over your head.
By the way – don’t set your limit at a round number, because most people do. So while the opposition may stop at $420,000, if you are prepared to bid to $422,500 that extra bid may just win you that property.
2. Get to know the selling agent
Just as it’s important to know the property market you’re buying into, it’s also a good idea to research the agent who’ll be conducting the auction. All auctioneers have different techniques, but many have their own particular style or characteristics.
Attend lots of auctions to get an idea of how they work. Observe how auctioneers, buyers and sellers behave on the day. Observe some of the tricks of the trade in practice. Then observe how the auctioneer who’ll be selling the property you’re interested in performs.
You might get to know when the winning bid is made by the way the auctioneer talks or moves. Auctioneers generally have certain catch phrases or actions they’ll use every time they get close to selling a property. Watch them carefully and you might just get the upper hand!
3. Have the property and the documentation thoroughly checked
Have your solicitor check the contract of sale before the auction day to make sure everything’s in order, and speak to your lender or mortgage broker to organise your finance so that you are able to proceed with the sale if you’re successful.
Remember, if the auctioneer knocks the property down to you, you’ve purchased it and will be legally obliged to settle. Many lending institutions will give you written loan approval prior to an auction, allowing you to bid to a certain price.
Be sure to have a professional building and pest inspection done on the property before the auction. If you’re serious about the home, this will be a small price to pay for peace of mind, even if you don’t end up making the winning bid.
4. Don’t be afraid to ask for help
If you are not comfortable with the stress of bidding at auction, have a friend or a professional assist you.
A buyer’s agent can be well worth their professional fee when it comes to bidding for you as they won’t get carried away and let their heart rule their head. They could also help you to determine what your bidding limit should be. They attend enough auctions to understand when something needs clarification and are not afraid to ask.
5. Negotiate terms before the auction
In property transactions everything is negotiable- not that you can always get what you want.
The same is true for an auction, even though most people don’t realise this and think they’re stuck with whatever terms the agent and vendor sets.
You may want to alter the terms of settlement, the amount of deposit, or the chattels that are included. But if you want to change any of the conditions in the contract of sale, you must request this before the auction, not after the bidding has finished.