With competition running hot, buying a house at an auction can be scary for both seasoned investors and first home buyers. That is why you need to be well-versed in everything related to auctions, such as the rules, procedures, online auction bidding and different strategies.
If you want to increase your success rate, here are nine auction tips to beat your competition:
Tip 1: Be Prepared And Get Pre-approved
You must prepare your finances and obtain pre-approval before you bid at an auction. By doing so, you enter knowing what you can afford (and what you can’t).
There is no cooling-off period at an auction, so you need to make sure you don’t overbid.
If you do overbid, you might be compelled to break the contract of sale, for which you could incur financial or legal penalties. On the other hand, if you underestimate the property’s value and underbid, you might risk dropping out of the competition early.
That is why you need to understand two crucial things from the beginning: your budget and the market.
Know Your Budget And Set Your Maximum
The primary purpose of an auction is to secure the highest price possible for the vendor. That is why you need to figure out your maximum and stick to it. By doing so, you can bid confidently and avoid falling into the trap of overbidding.
If you need help to determine your full borrowing power, our expert brokers can help. Call Home Loan Experts on 1300 889 743 or fill in our free online assessment form today.
Know The Market Where You’re Bidding
The other crucial thing you need to understand is the market you’re targeting, so you have a good idea of what the property is worth relative to others in the same market.
You can evaluate the market using various resources on the web to search for how much properties in the area have sold for in the past. You can also do your due diligence by ordering a building and pest inspection of the property. We can help by offering property or suburb reports, which provide crucial information.
Tip 2: Visit Other Auctions
Bidding at auctions is a skill. That’s why you need to attend as many as you can to build up your experience.
Auctioneers set traps. They get buyers to bid faster and more by creating a highly competitive environment. You need to learn to resist temptation and stick to your budget and your strategy.
By observing several auctions without participating, you can get a feel for auctioneers’ techniques. Then you should practise being logical and emotionally reserved during bidding.
You can read about case studies of two auctions from early 2021 here.
Tip 3: Register To Bid And Arrive Early To The Auction
You are legally required to register to bid at an auction. The procedure for this may vary from state to state. You may need to bring along a valid photo ID and proof of residency.
After completing registration, you will receive a unique bidding number, which will be used to identify you and your bids during the auction.
Arrive at least half an hour before the auction begins. During this time, you could perform a final inspection of the property and evaluate the environment, scouting your competitors, the auctioneer and the sellers.
Remember to stay calm and organised.
Bonus tip: Online auctions are becoming more common, especially as the COVID-19 pandemic continues. Read all about them here.
Tip 4: Keep your budget a secret
Although you want to show the selling agent that you’re a serious buyer, you should remember to remain tight-lipped about your budget. If the selling agent or a competitor finds out your maximum, they can take advantage of that information.
Tip 5: Check If Sellers Are Accepting Offers Before The Auction
Making a pre-auction offer gives you the chance to seal the deal before anyone else has an opportunity to bid.
If a seller is accepting pre-auction offers, you can evaluate the reserve price and make an offer. If the seller agrees to it, they’ll invite you for further negotiation or to sign the contract.
Here are some steps you can take to make sure the seller considers your offer:
- Submit your pre-auction offer in writing with details such as purchase price, deposit amount, mortgage amount, settlement date and other relevant information
- Draft and sign the contract for the sale
- Have your deposit ready
- Set a time limit
Keep in mind that you need to make sure the price you offer is close to the property’s reserve price. Also, get in early with your offer to avoid the competition.
Tip 6: Learn Your Competitors’ Bidding Styles
As in any competition, being able to understand your competitors better will give you an advantage at an auction. Typically, there are three types of bidding styles that might help you read your competitors and adjust your bidding strategies:
|Auction Stereotype||Common behaviour||Pitfalls|
|The high roller||Raises the bids early to scare off other bidders.||May end up stretching their limit, and either run out of money or pay more than they should.|
|The waiter||Follows slow and steady strategy, and waits to see other bids first.||More likely to exhaust themselves by having to make higher bids towards the end of an auction.|
|The rookie||Makes random bids too frequently.||Often frustrates and confuses everyone at the auction, and doesn’t succeed at buying the house.|
But before you can be wary of your competition, you need to be aware of yourself: practice your best ‘poker face’ to appear composed to your competitors, even if you are not.
Tip 7: Know When To Bid
An auction is more like a chess match than a Formula 1 race. You need to be strategic with your bids.The goal is to be the last one standing, with a final price that is low or at least reasonable.
Here are a few bidding strategies that may help you:
|Strategy||Possible outcome||Best to use|
|Bid early and go strong||You will clear out some of your competitors quickly.||When there are many bidders.|
|Bid early and go slow||You will control the process more than the auctioneer, and exert some pressure on the seller.||When the number of bidders is low.|
|Bid late and go strong||You will be able to scan your competition, and bid decisively towards the end but you may overstretch your budget, as the bids tend to get higher towards the end of the auction.||When you want to scare off another determined bidder with a big bid.|
|Bid in odd increments||You will slow the auction down a bit and throw a few bidders off their game.||When the price is climbing too quickly.|
Whatever strategy you employ, stay within your budget. The right bidding strategy will depend on the auction’s environment.
For example, the auctioneer will try to create urgency and a buyer wanting to purchase at a lower price should attempt to counteract this by slowing the pace of the auction. Bidding in odd increments can accomplish this, as it takes time for the auctioneer to add up the numbers.
That’s why it takes experience to know which strategy would work best for when. If you’re not confident to bid, you can also use a buyer’s agent who’ll bid for you.
Tip 8: Use A Buyer’s Agent
If you don’t feel confident bidding for yourself, or you want to remain anonymous, employ a buyer’s agent. They’re licensed professionals who purchase properties on a buyer’s behalf.
You can read more about the pros and cons of a buyer’s agent here.
Alternatively, you could ask a family member or friend you trust to bid on your behalf. Just remember to inform the auctioneer about it before the bidding starts.
Tip 9: Keep Calm And Bid Confidently
No amount of strategy or knowledge will matter if you get caught up in the urgency the auctioneer will create. Remember to be calm, controlled and call out your bid with confidence.
It is not only the amount that you bid but how confidently you bid it that will matter.
Tip 10: Be Prepared To Walk Away
Sometimes the price just isn’t right for you at an auction. On those occasions, you must be prepared to walk away. Let a property go if you feel like the price has gone beyond good value or is out of your budget. This requires discipline but it is essential to success. There will always be another property.
You can find more tips for negotiating on property here.
We Can Help You Get Pre-approval Before The Auction
Secure pre-approval so you can bid with confidence. Our specialist mortgage brokers will show you the best lender for your situation. Just give us a call on 1300 889 743 or fill in our free online assessment form today.