Before You Buy At Auction, Read This
A successful bidder at auction is not just the person who can pay the most for a home, but rather the one who remains cool and calm and avoids the pressuring tactics from real estate agents to make assertive bids that comply with their pre-established strategy.
So how do you be a that successful bidder? With a solid auction strategy that considers the auction process, plus property market research through SiteFinder and some simple auction skills, you can be prepared for auction day.
1. Do Your Research
Research the property, the street, the current market, auction clearance rates. Do your homework and be prepared.
- Ask for a price guide so you aware of the seller’s expectations. Some properties may not have one, and they are not the most accurate gauge of the sales price, but it is good to ask.
- Also, ask for the seller’s motivation for selling. This will be a good indicator of how to interpret the sale’s agent price guide.
- Conduct your own research on house pricing so you know what to expect
- Conduct your own research of suburb property sales
- Get a Site Report from SiteFinder for a detailed property analysis
- know your property value
- Review property sales data including house prices on the street, and recent home sales of comparable properties.
2. Be Prepared
Auctions are fast-paced stressful situations. If you have never bid at an auction before, start going to as many as you can. Become familiar with the environment, the language and the stress and learn how they work, how people act and react, and how real estate agents interact with the bidders.
3. Have Your Finance Sorted
Having finance pre-approved in advance is important. If you are a successful bidder you will be purchasing the property on unconditional terms, which means there is no period to obtain finance.
It’s important to make sure you can obtain a home loan before the auction, especially if matters like a bank valuation will need to be dealt with.
Not only does pre-approval allow you to set a clear budget and ceiling on your bids at auction, if you fail to obtain finance before the auction you may find yourself with limited opportunities for finance after, or even in breach of contract if you are unable to obtain a home loan.
4. Due Diligence
When you buy a property at auction, the terms and conditions that attach to the contract are very different to a normal contract for the sale of a property.
If you don’t have a regular solicitor find one and obtain a copy of the contract for them to review.
Remember, when you buy at auction there is no cooling off period, so make sure you are satisfied with the terms and conditions of the contract before the auction.
Building and Pest Inspections must be obtained before the auction. Use a licensed and reputable inspector to conduct an inspection of the property, and if possible, meet them onsite to review any issues they find.
Even if the seller has undergone their own Building and Pest Inspection, it is best to get an independent report yourself.
5. Have A Strategy
Setting a price limit prior to auction day is a good idea. Knowing your financial boundaries will prevent overspending so work out your walk away price before auction day.
When calculating your maximum spending limit, don’t just look at how much your mortgage is. Subtract from this:
- Stamp duty
- Bank fees and charges
- Mortgage insurance
- Legal fees
- Your moving costs
- Any second mortgage or rent you will need to pay if your property ownership overlaps
The purpose of this exercise is to create a bottom line, or absolute threshold, for bidding at auction.
Don’t be tempted to push the boundaries and keep bidding a couple of extra thousand over this limit.
6. Be Organised
Arrange for a deposit cheque for auction day and prepare your strategy for to alleviate as much stress as possible. Think about:
- Your maximum price
- What will you bid?
- If you will bid, will you bid immediately or if you will wait and see how the auction goes?
- Remember the last highest bidder has the right to negotiate if the property gets passed in, so consider if you want to be this person
Consider making a pre-auction offer:
- If you are serious about the property and don’t want to wait until the auction, have the real estate agent or your solicitor draw up a contract for sale.
- Your offer must be strong enough to convince the seller not to proceed with the auction, so consider the price estimate provided by the sales agent, but also the costs of auction the seller must pay too.
- Apply serious time conditions for acceptance of your offer so the sales agent cannot shop it against you.
- Ensure your offer is enticing considering the seller is about to attempt to sell under auction conditions (i.e. no building and pest or conditional period)
- Apply a short time period for acceptance of your offer so again, the sales agent cannot shop it against you.
7. On the Day
Auction day will arrive quickly, so review your strategy early and often:
- Come armed and prepared, with your photo id and deposit cheque.
- On the big day try to stay calm and cool.
- Discuss your strategy at home, before you head out to auction, but never ever out load at the auction.
- Do not discuss your finances at the auction site, particularly with an agent
- Register to bid and introduce yourself to the sales agent if you have not done so beforehand
- Look the auctioneer in the eye, smile and nod (or just nod!) in a confident manner
- Auctions are power play, so stand tall, have confidence and make eye contact
- Before the auction commences, mentally focus on your walk away number
- Be loud and firm with your bids, stating your bid in full numbers, for example, say “$550,000”, not “$10,000”, not “10”
- Make contact with the auctioneer every time you bid
- Firmly reject attempts from agents to get higher bids from you, especially if the property is passed in or at the stage where the property is awaiting instructions
- If the property is within your price limit, and looks like being passed in, ensure you are the highest bidder. This will give you the right to negotiate with the owner
- When your walk away limit is reached, stop bidding immediately
Some people like to take a support network, say a trusted friend or spouse – this is handy if you want to keep track of other bids or stop yourself from making an emotional bid over your budget.
Other people who are not comfortable in the highly stressful situation engage an agent to bid on their behalf. This person need not be a qualified real estate professional. A friend or relative can also bid on your behalf.
Overall, before going to auction, make sure you’ve done your research the property itself. Access property reports with everything from market information to development potential instantly with SiteFinder.