Buying or selling by Auction can be extremely stressful for all involved. However in a market such as we are currently experiencing, it is probably the fairest and most transparent way of establishing true market value. The Auction season is already once again in full swing with most Auctions starting mid to end February, so as our final instalment on “Buying in a Seller’s Market”, we thought we’d share with you our Top 10 Tips for Bidding at Auction.
1. The rules of Auction.
Ensure you fully understand the rules of auction before you plan to bid at one. For example, do you know the difference between a reserve price and a vendor bid? Are you aware that a reserve can be changed at any point in time during the course of the auction as long as written instructions are given to the auctioneer (or even in some cases, verbal instructions)? These are just some of the very basic auction procedures that many buyers are not familiar with.
- Contract for Sale.
Make sure that your solicitor or conveyancer has thoroughly reviewed the contract for sale, and explained your legal obligations should you be the successful purchaser. Any amendments you wish to have made to the contract (such as the amount of deposit, settlement period, inclusions, etc.) should have already been agreed upon between the legal representatives prior to the day of the auction.
Make sure that you have pre-approval in place from your chosen financier and that you have already researched your maximum purchase price to be in line with the market. The auction sale is unconditional, meaning there is no cooling off period, and even if your finance falls through due to a valuation coming in lower than the sale price, you will still be contractually obliged to come up with the full purchase price by the settlement date.
- Deposit Money.
You will need to have a personal cheque book with you if you intend to bid. Should you be successful, you will be expected to pay the deposit immediately. The deposit is usually 5% or 10% of the sale price, depending on what has been agreed. The other alternative is a bank cheque, however this can be quite time consuming and costly to arrange for a bank cheque each time you want to bid at auction. In addition, you will not know the amount required for the deposit prior to the conclusion of the auction, and most banks will be closed on Saturdays (when most auctions are held). Paying by bank cheque will also alert the agent to your maximum price level should you be lucky enough to pay less than you had expected!
- Auction experience.
Take the time to attend as many Auctions in your target area as possible. At least 15 to 20 Auctions would be ideal. No two Auctions (or auctioneers) are ever alike. This will give you a better idea on the different styles of Auctioneers and allow you to better gauge how they like to control an auction and how serious they are when they say “first call” or “second call”, for example. It will also prepare you for the nerve wracking atmosphere!
- Set your “walk away” price.
Before you attend the Auction, write down on a piece of paper the maximum amount you’d be prepared to pay for the property. Keep this paper with you in case you need to remind yourself! Emotional bidding is the quickest way to overpay and only leads to feelings of disappointment and regret. It could also take you years to financially recover from this. Your maximum price should be calculated by researching the target area, and having the property assessed by an independent property Valuer is often a good idea. Another tip – don’t set your “walk away” price at round figures as this is what most people do. So while the opposition may stop bidding at say $420,000, you might bid to $422,500 and be the successful purchaser.
- Bidding tactics.
If possible, arrive at the auction early so you can familiarise yourself with the competition as they register their details to bid. Position yourself at the back or side of the group so that you can see everyone in the room. Confidence is key when bidding at Auction. A lot of people like to wait until the very end before they start to bid. However unless you are a seasoned professional this can be extremely nerve wracking. If you start bidding early and low, then by the time you reach the crucial buying phase of the Auction, your nerves will have settled and your confidence levels will be high. Remember to take your time. It’s not a race. The Auctioneer’s role is to achieve the maximum price for the seller, so if done properly they will take the time to extract every last dollar before the hammer goes down.
- Passing In.
If the bidding doesn’t appear to be in line with the seller’s expectations, they may lower their reserve price to meet the market, or they may pass the property in. We always tell our clients that they are likely to get the best outcome through the transparency of the auction bidding process, rather than behind closed doors and relying on the selling agent’s representations about the competition in the days following auction. However if this is not possible, you should try to at least be the highest bidder. This will give you first opportunity to negotiate a sale price after the Auction. Keep in mind that a sale made after the Auction is still subject to Auction conditions until midnight on the day.
- Don’t Stress.
Don’t be afraid of auctions. Most people think they favour the vendor, however they can also work well for you too. You may actually pick up a bargain if competition is scarce and auctions can act as a good way to send a signal to the vendor that their price is unrealistic. If the pace is going too fast for you, you can always try to slow it down so that it does not overwhelm you. If all else fails you could ..
10. Use a Buyer’s Advocate.
The use of Buyer’s Advocates to bid on behalf of purchasers is becoming increasingly popular. With no emotional attachment to the property, you can rest assured they will not spend over your budget, and they can be an imposing opposition to your fellow bidders. You can choose to either be present during the auction or sitting comfortably at home while communicating by phone. Having a Buyer’s Advocate on your side not only increases your chances of securing the property but also provides you with invaluable relief knowing that you are in expert hands.
Thank you for reading to the end of this article. We’d like to show our appreciation of your support by offering our services to bid at your next auction for only $325 (usually $395!). To take advantage of this special offer you must register your interest before 28th February 2014 by emailing us at firstname.lastname@example.org. Once registered, this discounted service will only be valid for 3 months.
Happy house hunting!