How to win at auction
If you live in Melbourne and have been out for your morning coffee on a Saturday you will have no doubt seen crowds of anxious people in residential streets milling around next to a for sale signboard waiting nervously for the auctioneer to begin his spiel. An out-of-towner recently commented to me in her European accent on how strange she thought the way we sell property is in Melbourne. Her summation was "... It is bizarre the way you do things here in Australia. Everyone stands around out the front of the house and watches while a man in a suit shouts at everybody until the property sells." It's a pretty apt description but as the man in the suit myself, i have my own thoughts about it.
Australia is the auction capital of the world and Melbourne is the auction capital of the nation and on some busy weekends, it is not uncommon for more than 1,000 homes to go under the auctioneer's hammer. When house-hunters are asked what they think of auctions, the sentiment ranges from knee-trembling nervousness to blasé or aloof confidence.
As with many things in life, it is not so much the event itself but how you handle yourself and your emotions that will determine your success or feelings around the subject. If we want to win at auctions, we have to define what a win will look like because it is not always what you may think.
Clearly, winning on the final bid when the property is knocked down to you is the ultimate win. You have achieved your goal of purchasing and you just need to sign the contracts, put up the sold sticker and off you go. Much determination may have gone in to this type of win and for many this may mean; months of weekends trawling websites, attending open for inspections, emailing and calling estate agents, researching prices, rental yields and so on. It is this preparation, that for many is key to knowing when to put your hand up and when to put it down. Having a clear knowledge of what buyers have been paying for similar homes goes a long way to producing the confidence that is needed to make that winning bid. Beyond knowledge of past sales, you also need to have a punt at what the market is just about to do. This is not always easy to predict however you must remember that when you are standing at the auction and the property is about to be sold to one of you, you are the market. It is you and the other bidders around you who are creating the current market dynamic and the prices therewith. So you need to be prepared to go along with it in many circumstances and cast aside any preconceived ideas you had around the potential value before auction day. This does not necessarily mean continuing to bid at any cost, however you may need to make allowances if there are other bidders there who are there prepared to make their own. Often new precedents of price are set on auction day and waiting for the next one to come along may end up costing you more. (See my blog post on this.)
If however the bidding does not reach the reserve price and you are holding the highest bid, you will be ushered inside by the agents to be the first one to discover the vendors reserve price. This is a significant opportunity to have a win at auction without the usual competition from other buyers. Some buyers get cocky at this point and indignantly refuse to budge on their final bid stating that they should not have to pay any more because there was no-one else there bidding any more, so why should they. Please realise now before you get to the auction that the price the auction reaches does not necessarily mean that's what its worth. Some auctions get no bids, that does not mean that the property is worthless. Much goes in to an auction campaign from the agent and vendors perspective and there can be many pitfalls that can lead to an auction not generating competition on the day. For some, there is only a select few buyers at any given moment, for others there was another competing property being auctioned at the same time. Others still were poorly marketed or incorrectly priced. Whichever it was, the auction is just one day in the process and a property that flops at auction with no bids can just as easily be sold that afternoon by private negotiations.
Buying the property during the post auction negotiations is an excellent opportunity to buy at a fair price because the vendor is motivated to achieve their goal of selling on that day. Whilst your highest bid was not enough to tempt the vendor to put the property 'on the market' (meaning the reserve has been met), the agent and vendor will be keen afterwards to hear you improve on your bid after the reserve has been declared to you. If you pay the reserve price, the property is yours and you can avoid the possible competition that may take place if you elect to instead walk out the door empty-handed. You will need to be prepared to be flexible and will be given adequate time to consider this offer. If you do walk out the door, do not be surprised when the agent calls you later because he or she received an offer from another buyer or to tell you the property sold. Get it while it's hot and while the vendor is ready to sell. By Monday, the vendor has recovered from their auction day angst and the agent may have already received some new enquiries or offers.
The final way to achieve a win at auction is by walking away. It is not the win you are after however everyone has their price and if you have pushed yourself as much as you can and you can either not afford it or you truly think that the bidding is going well above what is fair, the best win you can hope for is the win where you get to hold on to your money, in readiness for the next one.
For all real estate related information or advice, contact the author Simon Wendt, Licensed Estate Agent at Hockingstuart Mentone on 0407 040 706.