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5 tips to buying well at auction

There are only a few weekends left before the end of the year but many Australians will be looking to buy a property at auction in that time.

I know Pam and I are hoping to buying a property at auction this weekend (a block of apartments for our SMSF.)

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As often happens when the real estate markets  hot up weekend property auctions have become almost a national pastime especially in Melbourne and Sydney.

While traditionally favoured for premium and inner-suburban properties, auctions have now spread to the middle and outer suburbs, as vendors grow to recognise that they can be the best way to maximise the value of their home in a rising market.

People go along to have a sticky beak, to get an idea of the market, to fantasize about their dream homes or just to watch the street theatre unfolding before them – it’s a bit like watching buskers, you see an auction and you just have to stop and gawk awhile

For all their street theatre and entertainment value, auctions represent a lot of stress and a lot of tension for those involved.

Whatever the result, you can be sure that pressures will reach boiling point with so much money at stake which means that buyers, sellers and even agents will have a tough time keeping their nervous energy and emotions under control.

Avoid the emotion

Given the circumstances in this emotional cauldron, it’s hardly surprising that a common mistake many purchasers make is the way they bid at auction.

Vendors, in particular, stand to gain excellent results if there are two or more genuine buyers putting pressure on each other and inflating the price as they get emotional under the pressure of potentially losing their dream home to a competitor.

Buyers, on the other hand, need to be very wary that they keep their emotions under control.[sam id=36 codes=’true’]

Most purchasers hate auctions because of the pressures they put them under to make quick decisions, but it must be recognised that the sometimes unpredictable nature of the beast means auctions can produce real bargains.

I have personally bought some great bargains at auction.

If you’ve done your homework on the property, know its value, understand the market and know how to control an auction, you will find yourself a great deal if you attend enough auctions.

One of the advantages of buying at an auction is that you can see your competition.

If the property reaches its reserve or is ‘put on the market’, as they say, you’ll have a chance to see what the real market value is.hammer-auction-large

Sure multiple bidders may push the price up because they become emotional about the property, but that’s the market talking.

Conversely, with a private sale you’re flying blind. You don’t know how the rest of the market views the asking price, or what price other buyers are considering, and even if you’ve done your homework there could be a difference of 5 per cent to 10 per cent in your perception.

If you think a property’s worth $450,000 but everyone else thinks it’s only worth $410,000 you could effectively pay $40,000 too much!

So if you’re looking at buying a property it’s important to understand about buying at auction because if you’re the successful bidder on the day, you are legally bound to buy the property.

So to help you be prepared, let’s take a look at the auction experience.

Currently many auctions attract large crowds with multiple bidders and the emotions on the day often push the final price way above the “quoted” expected selling price range.

One way to avoid this is to simply try and buy the property before it goes to auction.

If we think the property will be highly sought after, with multiple bidders at auction, we try to buy it for a fair price before it goes to auction.

We know we won’t get a bargain, but we also know that if we want to secure the property at a fair price and not have to compete with three or four other bidders who may get carried away at the auction, its best to declare our interest to the selling agent and try and eliminate the competition.

If you plan to bid at auction it’s critical you do your research thoroughly before the day and be prepared, so here are 5 tips to help you buy well at auction:

1. Work out what the property’s worth and what you’re prepared to pay

Research recent sales, talk to agents, explore the neighbourhood and speak to neighbours.

Use your research to set yourself a price limit and stick to it!

Once you’ve set your limit, never bid above this price. You might have your heart set on that home and feel you have to have it, but there’s no point getting in over your head.

By the way – don’t set your limit at a round number, because most people do. So while the opposition may stop at $420,000, if youa re prepared to bid to $422,500 that extra bid may just win you that property.

2. Get to know the selling agentauction

Just as it’s important to know the property market you’re buying into, it’s also a good idea to research the agent who’ll be conducting the auction.

All auctioneers have different techniques, but many have their own particular style or characteristics.

Attend lots of auctions to get an idea of how they work.

Observe how auctioneers, buyers and sellers behave on the day. Observe some of the tricks of the trade in practice. Then observe how the auctioneer who’ll be selling the property you’re interested in performs.

You might get to know when the winning bid is made by the way the auctioneer talks or moves. Auctioneers generally have certain catch phrases or actions they’ll use every time they get close to selling a property.

Watch them carefully and you might just get the upper hand!

3. Have the property and the documentation thoroughly checkedProperty-Investment-Checklist

Have your solicitor check the contract of sale before the auction day to make sure everything’s in order, and speak to your lender or mortgage broker to organise your finance so that you are able to proceed with the sale if you’re successful.

Remember, if the auctioneer knocks the property down to you, you’ve purchased it and will be legally obliged to settle.

Many lending institutions will give you written loan approval prior to an auction, allowing you to bid to a certain price.

Be sure to have a professional building and pest inspection done on the property before the auction. If you’re serious about the home, this will be a small price to pay for peace of mind, even if you don’t end up making the winning bid.

4. Don’t be afraid to ask for help

If you are not comfortable with the stress of bidding at auction, have a friend or a professional assist you.

A buyer’s agent can be well worth their professional fee when it comes to bidding for you as they won’t get carried away and let their heart rule their head. They could also help you to determine what your bidding limit should be.

They attend enough auctions to understand when something needs clarification and are not afraid to ask.

5. Negotiate terms before the auctionnegotiation-skills-training

In property transactions everything is negotiable- not that you can always get what you want.

The same is true for an auction, even though most people don’t realise this and think they’re stuck with whatever terms the agent and vendor sets.

You may want to alter the terms of settlement, the amount of deposit, or the chattels that are included. But if you want to change any of the conditions in the contract of sale, you must request this before the auction, not after the bidding has finished.

We’ll often ask for amended terms just to gauge the level of interest in the property and how much competition we’ll have on the day. If we ask for longer settlement or a smaller deposit and the vendor refuses, it could mean that they’re confident that there’s strong interest in their property and the agents expect multiple bidders on the day.

On the other hand, if they accept our requests, it suggests there may not be as much interest as they would like.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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