How to win at real estate auctions, according to the experts
What you need to know to nail a property auction, plus five winning expert tips.
Buying a home at auction can be daunting at the best of times, but when competition is running hot it can be an exasperating or even dispiriting experience. As low interest rates and government incentives drive a surge in demand, every weekend hopeful buyers watch on as prices ratchet up and someone else snaps up their dream home.
The good news is that seasoned auction experts say there are tips and tricks that can help give you an edge when bidding at auction. Here’s what you need to know to nail the auction game.
Auction experts say there are tips and tricks that can help give you an edge when bidding at auction.
Know your budget
When you buy a house at auction there’s no cooling-off period, so before you raise your hand to bid you need to know just how much money you can afford to spend. If you are selling an existing property to help fund your purchase, you will need to know how much it’s likely to sell for, minus selling agents’ fees and marketing costs. “Unless you’ve got a really good handle on that, your auction strategy can end up being a disaster,” says David Ginnane, managing director of RACV partner Agent Select, an independent property advisory service that helps people find and compare real-estate agents and provides free property valuations.
Under-estimate how much you have to spend and you might drop out of the bidding unnecessarily early and miss out on a home you could have afforded. But over-estimate and “you end up with a significant deficit that you may or may not be able to bridge through lending”, says David.
It’s also essential to have your finances organised and approved before the auction, says buyer’s agent Fahey Younger, director at Younger Hill Property Advocates. “You must be sure you can transfer your 10 per cent deposit on the day of the sale,” she says, “because if you can’t, you forfeit the sale.”
Most importantly, she says you must be very clear on how much you can afford to spend. Speak to your lender to determine your full borrowing power, work out your upper spending limit – and don’t exceed it. “If you overbid at auction to secure the property, then can’t come up with the balance when it comes to settlement, you will have broken the contract,” she says. “The vendor can then pursue you in court to recoup any shortfall in a subsequent sale.”
Know your market
As well as knowing your budget, it’s also crucial to understand the particular market you’re wanting to buy into. “There is no such thing as a national, or even a state, property market,” explains David Ginnane. “In reality the property market is a patchwork quilt of very localised and dynamic sub-markets.”
“Go to the inspection, do your due diligence,” says veteran property investor Suzannah Dacre, investment strategist with ULTISpro. “If you can, take a building inspector with you, if you don’t like hidden surprises. If you’re bidding on an investment property, make sure the property you’re considering will provide decent rental returns.”
Make sure you research published auction results for the area to get a realistic idea of what similar properties have sold for, and make use of resources such as RACV partner Landchecker – an online portal that lists the sales history of properties across Victoria and NSW, as well as other useful information such as site size and boundaries, planning zones and permits, easements and heritage overlays.
An increasing number of auction results are unpublished, but buyer’s advocate Fahey Younger says local real-estate agents are a good source of intel about the local market. While real-estate agents act on behalf of the seller, Fahey says, they are usually happy to discuss the local market with buyers and can provide good information about what similar properties in the area have sold for. “A good agent is going to be thinking about the long game, wanting to keep you on their database if and when it comes time for you to sell,” she says.
Know the real price range
A trap for new players is to expect a property to sell within the quoted price range. The idea of an auction is to secure the highest price possible for the vendor, not a bargain for the buyer, so adjust your expectations and budget accordingly.
Greville Pabst, property adviser and founder of WBP Group, one of Australia’s largest property valuation firms, explains that while a property has a ‘technical value’, current market sentiment is pushing sale prices well beyond the quoted range. “The emotions and the fear of missing out – this market sentiment that is running at the moment is carrying the value range well over technical valuation by 10 to 15 per cent,” he says.
Greville, who will be familiar to viewers of The Block as one of the celebrity buyer’s agents, advises his clients to also carefully consider the price of missing out against potentially spending a bit more to secure the property. “What is the price you are prepared to pay in the knowledge that you’re going to get your forever property, where you’ve got an emotional attachment to it and there’s nothing else like it, you’ve already been looking for six months?”
However, Suzannah Dacre warns against getting caught up in the heat of the moment at auction. She says it’s important to try to remain dispassionate, and be prepared to walk away if the bidding goes beyond what you can afford or have budgeted for. “There are plenty more opportunities out there, and quite often the properties with a lot of interest aren’t the smartest options, due to the premium sale price. Don’t be personally invested in the decision, be prepared to lose.”
If you don’t think you can remain unemotional, ask a level-headed friend or family member to bid on your behalf – with very clear instructions about your upper limit. Or engage the services of a professional buyer’s advocate to represent you.
For a low-risk strategy, hold off making your first bid until the final calls begin.
Know your body language
Suzannah says an auction is “much like poker” when it comes to reading the competition, which is why, as a bidder, it’s important to be clear and controlled. “Try to appear relaxed and don’t be rushed. Don’t get distracted and chat with your partner or be on your phone. If you don’t keep your composure, you can lose fast, or get into financial trouble.”
Professionals like Greville look out for any little tell-tale signs that you’re losing your nerve. “I’m watching and looking for any signs of weakness,” he says. “If somebody is wavering at $1000, as soon as they say $1000, bang! – I’ll hit them with $5000. It’s showing strength. You have to be confident, you have to be loud. You mean business.”
“Have a power stance,” he says, and make sure you position yourself strategically, so you can see the other bidders and “are in clear sight” of the auctioneer.
Greville also watches the auctioneer’s body language to gauge if the property is on the market. Talking fast (‘going once, twice, are we all done?’) suggests it is, while slowing down speech patterns and drawing things out to search for bids can mean it isn’t.
Know when to bid
While some like Greville favour lobbing in early with hefty bids in an attempt to intimidate the competition, Suzannah says this is a high-risk approach, especially for inexperienced buyers.
Her strategy is to hold off making her first bid until the final calls begin (i.e. “going once...”) “If you go big early, your confidence may just pay off, but more times than not, you’ve just pushed up the competition and value of the property,” she warns.
Buyer’s agent Fahey agrees. “Big increments don't benefit me or my clients,” she says. “I bid at an auction yesterday, and bid only in $1000 increments once the property was on the market. The other bidder jumped all around the place with $5000 rises, $2500 rises. I just met him with another $1000 until I wore him down.”
She says your goal at the auction should be to be the last one standing, to either be the winning bidder or have that first right to negotiate. “If the property is going to pass in to the highest bidder you want to make sure that person is you,” she says.
The advice provided in this article is general in nature. Individuals should seek professional advice from an independent licensed investment adviser, tax agent or solicitor before making decisions about financial affairs.