How To Win At A Property Auction

AuctionSign 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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Comments

    I think many of those strategies could work for or against you, depending on the mindset of other interested bidders on the day -- particularly your presentation / luxury car, which could imply the property has a value higher than average for the area -- that's the kind of thing that would place the agent, and their vendor at a distinct advantage over the bidders.

    most agents will do everything in their power to ensure a property goes to auction, even if that involves rejecting verbal offers or concealing interested buyers from the vendor, if the property is being advertise for private sale -- the agent's commission from an auction is immensely higher for an auction than it is for a regular sale, so their motivations are clear to anyone who can see beyond their own nose.

    ultimately, the biggest loser in auctions is the buyer, who has to go through a highly wrought, emotive, bidding war on the day of the auction; with no guarantees of success no matter how much they offer -- the price paid is rarely related to the value of the property, but rather what the bidders can afford.

    if you want to see the difference it makes to the buyer -- take the reserve price (+/-$5,000) and then add on whatever the final sale price is for a given property -- this can be as much as 30% of the advertised property price, and is a good reflection of how much more you will end up paying if you buy at auction.

    basically -- if you have millions more than you know what to do with, or you have fallen head over heels for a rare and unique property (eg. architect-designed, heritage-listed mansion) then auctions may well be the only way to buy your slice of paradise.

    on the other hand, like most of us -- buying a house is a seriously sizeable investment in your future and you don't want to throw any pat of it away -- treat all auctions like you would a casino.

    that said, the downward trends in auction interest in Australia, along with recent government crackdowns over rampant misconduct and misrepresentation by real estate agents has meant agents have to work harder to make a sale. I would hope these promise greater honesty, integrity and transparency in the profession in the long term, but so far it is not showing much result.

    agents don't always get higher commissions for auctions. My last place i used an agent and the commission was the same if sold prior or during auction and it was comparative to other quotes.

    I think 1 reason agents like them is that it makes selling the house have a defined campaign and also there is pressure for the seller to sell on the day, i would suggest with out looking at numbers for weeks on books would be lower for auction as ther eis generally a focus to sell in 4 to 7 weeks rather than up to 3 months.

    I don't think auctions are all that different in the US and Australia. So, I think most of these tips are just fluff. Bottom line, if you win an auction, you're going to pay more then the one person who shows up and has a slightly lower limit then you do. You can rent a fleet of luxury cars, if someone shows up with a higher limit, they will outbid you.

    Kryzstoff has some great points, but in Melbourne auction is so common place we can't find a joint that doesn't go to auction. We have even tried putting in offers before hand, but have been told they wouldn't accept offers. I also agree that while all of this makes some kind of difference the difference isn't huge.

    Just throwing it out there that you do have to remember to do your research on the property as well. Ask around for estate agents in the area who might be able to give you a good estimate of what the property is worth and set your budget. If you don't succeed at the auction, don't fret. It's not just attaining the estate that's going to make you happy at the end of the day - it's also the maintenance and ability to turn it around that will.

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