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Empower Wealth Blog post by Empower Wealth

Why are people so scared of auctions?

It’s true. Melbournians are scared of auctions. For some, the very idea of an auction sends adrenaline rushing, but for others it throws a great property listing onto the scrapheap before they have even seen it in real life.

We constantly field questions about auctions and introduce ideas for clients to combat some of their auction concerns. Most of these ideas come as a pleasant surprise. Let us shed some light on the mysteries of auctions and why they aren’t necessarily a bad way to buy.

The first obstacle for most prospective buyers is the quoted price range on the ad.

Some call it the estimated price range (EPR), others call it the buyer enquiry range, while some agents just leave the price component blank with a message stating “Price on Enquiry/Application”. All of these ridiculous ploys annoy buyers because they are either untrue or they require the buyer to call up the agent for every second listing. So why do the agents do it? “Because they all do” is the answer they offer you.

So instead of throwing the property on the scrapheap before you have even sighted it, work with what you have. You will need to understand first and foremost that agents generally underquote auction listings by 15% from the bottom of the range. If you add 15% to the base figure and it still fits within your budget, go and see the property. If there is no advertised price, call the agent, ask them what the buyer enquiry range is, add 15% and go and see the property. Don’t quiz the agent too much on the initial phone call. It’s much easier to glean more information from the agent once you have met them in person and have seen the property.

The second obstacle for prospective buyers is being able to work out whether they have a good chance of being a successful bidder on the day.

After all, a well prepared buyer will pay for a building/pest inspection, will have a solicitor or conveyancer peruse the contract, and they will no doubt invest many hours in the due diligence process leading up to auction.

There is nothing worse than being outbid after you have spent time and money on a property. Prior to investing time and money in a property is talk to the agents. We like to ask them what recent comparable sales in the area they used when they first met with the vendors to appraise their property.

If you think that agents won’t divulge the truth about price, equally they won’t like to be looking stupid when you ask them this question. It’s our favourite way of finding out the truth about price expectation.

Be sure to also ask the agents how many bidders they expect on the day. Very rarely do they give an incorrect answer but its worth a try. Finally, ask the agents if the vendors are interested in selling the property prior to auction. This last question is a vital one – but one which needs to be played very carefully. Some agents will say “maybe” and it is just a trick to find out what sort of budget you can spend on the property. When the question is executed properly though, an agent can divulge the status of the campaign and/or vendor’s position without even realising.

The third obstacle relates to the ‘unconditional contract’ element which usually apply to auctions.

In Victoria, there is no cooling off provision for a property sold under auction conditions (and this includes sale dates three days either side of the advertised auction). Many purchasers find this element too uncomfortable and opt out altogether. It doesn’t happened often but there are times when you would be able to pre-negotiate “subject to finance” terms on auction contracts for my buyers. All is not lost on this front – if you don’t ask, you’ll never know. It’s usually a case of a desperate and fearful vendor when conditions are considered. The same applies for variations to terms, for example, size of deposit, agreed settlement periods etc.

Everything is negotiable prior to auction so be organised and ask the agents before auction day if you have special requests or variations.

The final (and most significant) obstacle for many buyers is the auction bidding process itself.

Many buyers turn to water at the mere thought of standing up in a public place, staring down other buyers and engaging with the boisterous auctioneer while he holds a gavel in his hand. It’s not as scary as it looks though and it doesn’t last for very long. Having said that, there are a LOT of tricks a skilled bidder can adopt to shake off and intimidate other buyers. If you aren’t confident to carry out the bidding yourself, ask someone with experience to do it for you.

On a positive note – if you buy at auction, you will have the security of knowing what price other buyers were prepared to pay for the property. You don’t always get this certainty with private sales. It’s a nice feeling to pip someone else for just $100 (as opposed to $10,000). So on that note – enjoy the adventure and be brave!

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