As the housing market becomes more competitive, auctions are likely to become more common. Here's some key tactics to make sure you win if your dream property is being sold at auction.
Picture by vek
The argument over the pros and cons of renting versus buying can run for quite some time. However, if you are going to buy a house, there's one thing almost everyone agrees on: buying at auction is a lot more stressful, and potentially a lot more expensive.
"Try and avoid auctions as much as you can in the current market," Frank Valentic, director of property hunting and auction service Advantage Property Consulting, told the audience at the Home Buyers Show in Melbourne last weekend. "If you're up against six bidders, you're going to pay more."
While auction clearance rates fell to low levels last year as the economic downturn bit, the recent gradual improvements are likely to make auctions more common. Auctions have always been more popular in some markets (such as Victoria), but an auction can pop up anywhere.
Assuming you've found a property that's being sold at auction, what strategies should you follow? The first is to try and convince the vendor to sell ahead of time. "You're playing in a tough sellers market. Take the property off the market beforehand if you can." Beyond that, Valentic offered the following tips.
Present to impress. Wear your most expensive suit and look professional in order to ward off other bidders. "If people think you have more money than they do, they will stop bidding sooner." Valentic also suggests renting a prestige car (or taking one for a test drive) and ostentatiously parking it near the venue.
Use questions to throw off other bidders. "Ask a question at the start to unnerve other bidders," Valentic suggested — topics such as information on nearby developments or the area's heritage status can work. While an experienced auctioneer will hose these down as quickly as possible, they can still convince some bidders to pull back.
Make your first bid close to the reserve. "Wait for a low first bid and increase to around the reserve," Valentic said. That can eliminate low-bidding competitors and moves the auction into a more realistic phase. "Cut out as many bidders with your first bid as you can"
State the full price every time. In the race to lodge your bid, it's often tempting simply to state the last few digits, or the extra amount your offering. That's not the ideal approach. "Make sure you don't just say 500, or whatever the increment is. State the full price. You want every bidder to know exactly what you're paying every time. Always call your bids out with full numbers." Taking longer to state your bid also ensures that you're still in the race. "Make sure you know you've got the bid in a tight auction"
Bid quickly and definitively. At many auctions, there's a pause while couples negotiate once they are near their limit. If you have a definite limit, you can bid without pausing and scare off potential rivals. "Bid straight back without hesitation," Valentic said.
Stick to your pre-auction limit, but don't end on a round number. "This is the biggest mistake people make at an auction," Valentic said. Being prepared to go to a figure like $582,000 rather than $580,000 — a relatively small difference in the context of the overall price — is enough to win many auctions, he said.
Realise that not all auctions will go your way. "An auction is a game of poker — sometimes you don't have to have the highest hand to win," Valentic said. However, there are limits. If someone has $100,000 more than you to spend, then no amount of posturing and planning is going to help.
Got your own winning property auction strategy? Give us the dirt in the comments.
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