Tips for Buying at Auction – Part 1
I find that lots of buyers are really reluctant to go to auction and to be honest, for good reasons because its largely a process that favors the seller and of course, the auctioneer. But here’s five tips that I can give you to help you better prepare for when you’re buying your next property at auction.
Auction Tip No.1
The first one is quite simple, attend auctions and loads of them because it’s here that you can understand how the market’s activity is like. You are going to see how many bidders are at each property and generally speaking, there are usually two or three bidders on average at a property. But if you are seeing only one, that probably means that there are not a lot of demand in that particular area for a comparable property. On the flip side, if you are seeing 5 – 7 bidders that means loads of people are interested and that’s going to push the demand up. That may also have an impact on the property that you are looking to buy. So you can actually get a really good sense on the market’s activity.
The other thing that you can do is you can compare the pricing because quite often in Melbourne and Sydney, you get these price guide which are often quite a long way from where the actual results end up being. I know that a lot of people add a little buffer on these price guides but if you actually go to these auctions and see how much are they selling for, you get a really good idea for where the value is but also compare that against the property that you are likely to go for in 2 – 3 weeks time.So it’s really good way to keep on top of price in the area.
The other thing that I think is really important to go to loads of auction is that you can understand the lingo.
If you can, go to the auctions where your auctioneer is actually selling the property. Cause you’ll then understand his process, you’ll understand his lingo and you’ll get a good idea on what he says when the property is on the market.
You’ll also get a good idea when he says its getting close to median reserve and also what happens when it met reserves and the bid it starting to run away. So it gives you a good sense on what is actually going on cause they will be saying, “Going once! Going Twice!” really quickly probably earlier on to try and create a little fear that you are going to miss out. But that’s not necessarily where the market is actually at and its not whether the reserve price is actually met. So, know the lingo, know what they are going to say and you’ll be better prepared.
And the last thing I like to do when I go to these auctions is I like to talk to the locals. Quite often, there’s a big crowd but if there are only two or three bidders, the rest of them are just sticky backs. They might be neighbors, friends and might be a range of people. So try and talk to the locals and see what they think about the person’s next door or someone across the street. What’s the street like? Is it a cut through? Are the school nearby really great? Or is there a developer around the area who just bought lots of property nearby with the attention to knock them down and build multiple townhouses. That sort of intel can be critical and quite often, you wouldn’t get it from the real estate agent but the locals will be quite happy to have a chat and tell you what it looks like. So that’s my number 1 tip to buying at auction. Attend as many auctions as possible.
Auction Tip No.2
My second tip is to actually set your limit before you turn up on the day and that’s based on your comparable sales research, you know what’s being sold in the area, you’ve spoken to your mortgage broker, you know exactly what your budget is. Because if you set your limit when the environment isn’t full of emotions and full of adrenaline, that means you’ve got something to stand on when the red light comes on and all of the spotlights is actually on you as the bidder. I’d say that it’s very important when you do set your limit, try to avoid from round numbers. If you are going to spend $800,000 maybe think about spending $807,000 for example or at the very least, $803,000 because what happens is quite often, a lot of people will get a pre-approval for $800,000 so maybe 2-3 people will turn up and say, we’re here up to $800,000 and not a cent more. But if you actually do have that little bit more over that round number, even if its $805,000, that means you are not going to die wondering and you may actually get the property for one or two thousands dollars more than the next person who came with the same number. So never end on a round or even sort of number.
Here are other parts of Bryce’s Auction Series: