Many property investors are a little intimidated by the thought of bidding for a property at auction.
It’s understandable – auctions are an emotional and exciting event.
Even after bidding at hundreds of auctions, I must admit I still get that surge of adrenaline every time I bid.
Then of course there’s the lead up to the auction with all the unanswered questions: What does the vendor really want for his property? Is the agent under-quoting and enticing me to come along on the day? How much competition will there be?
Then there’s 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 usually the best properties are offered for sale by auction.
The benefits of going to auction:
I believe if you’ve got a good property for sale the auction process is usually the best way to sell it and, at the same time, auctions are the most transparent way to buy property.
I like to know who else is interested in the property and what they’re prepared to pay. I like that I can see my competition and read their body language. I watch for the signs that they are close to their limit.
Of course I know many buyers don’t see auctions this way. They see them as highly stressful events and they’re worried that they may pay more than they intended to in the spur-of-the-moment excitement.
This only happens when you’re unprepared.
However if you’ve done your pre-auction due diligence, such as getting your finances in order, checking the contract and prices, and determining your maximum price, you can then just consider the auction 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.
Preparing to buy via auction:
You can make an offer prior to auction, but you risk paying more than you need to. Pre-sales usually occur when there is a lack of interest or when one buyer is offering a lot more money than the others.
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. You need to organise this before the auction – state laws vary so ask the agent or ring your state’s Real Estate Institute to find out what paperwork is required.
Remember, buying at auction is an unconditional sale so here’s how you should prepare:
Pre-auction due diligence:
- Have your purchasing entity organised (trust, SMSF etc) if you are not buying in your own name.
- Get a finance pre-approval so you know your budget and attend the auction ready to write a deposit cheque.
- Attend many 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 his particular techniques and the words he uses.
- 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. Armed with that power, you can identify a ‘walk-away’ price – the highest price you’re prepared to pay.
- Play your cards close to your chest. Real estate agents are very skilled at prying information out of potential purchasers, including the price they’re prepared to pay for a property. After all – it is their job! Sometimes you can end up revealing things to them that you never intended to and that might be detrimental to your negotiation power. By keeping your cards close to your chest and revealing very little about how much you might pay for a home, you maintain an advantage and ensure the agent cannot use your information to sway another potential buyer or to help the vendor set his reserve price.
- Show your solicitor the contract and organise any amendments to the contract he suggests.
- 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 (i.e. they’re inspecting the contract, saying the right things etc.) 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 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 just the increments – $5000).
- 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.
Article Source: smartcompany.com.au