I took a call late Friday afternoon from a good friend of my youngest son who was calling for some fatherly advice from his good mate’s solicitor Dad.
He opened the conversation with:
“Rob, I don’t want to blunder into unfamiliar territory so I thought I would give you a call first. I have noticed that there are a lot of quality properties coming onto the market lately for Auction.
I have found a property that I want to buy as my first real estate purchase. It is going to Auction tomorrow. A friend has given me all of the RP Data on the property so I have a good idea of what the property is worth. I have never been to an Auction before. What should I be careful about with Auctions?”
I said “Preparation and education are the keys to success when buying at an Auction”.
My best advice to him was not to buy at this Auction but go to this one, as an observer, and at least another half a dozen, and watch and learn about the process.
Despite my advice he said:
“I feel confident and although I am inexperienced, I want to give it a go at the Auction tomorrow.”
I advised him to register as a bidder and make himself known to the salesperson.
“Don’t bid until the Auctioneer states something like, “The property is now on the market and the highest bidder for the property will now buy it.”
“Usually”, I said “the bidding falters before the property reaches that stage (that is, fails to reach the reserve price) and the Auctioneer will stop the Auction to allow the salesperson to consult with the Seller.
If following that consultation the Auctioneer doesn’t state that the property is on the market, but instead makes a Vendor’s bid for the property then, once again, don’t bid until the property is placed on the market by the Auctioneer”.
“Yell out,” I suggested, “in a strong and loud voice this question to the Auctioneer -Has the reserve been reached, is the property now on the market?” Unless the Auctioneer gives you a clear statement that it is then don’t bid. Otherwise, you are just bidding against yourself.[sam id=32 codes=’true’]
If you do then bid, don’t bid again after making that first bid if the bidding is already over the amount that you wish to pay for the property.
In particular, don’t bid again if the Auctioneer makes another Vendor bid as you will once again just be bidding against yourself.
You must have a will of steel on this point. Don’t be drawn either in to making a bid by comments from the Auctioneer to your question such as “The property has been on the market for the last six weeks sir, and is on the market for sale today” or “Of course it is on the market, make a bid if you want to buy it”.
The Auctioneer must clearly state that the reserve has been reached and the property is now on the market before you bid.
Buying “As Is Where Is”
Understand that when you buy at an Auction you are buying “as is where is” and you don’t have the benefit of the Contract being subject to a pest and building inspection.
Therefore, if you don’t want to spend the money with an independent Building and Pest Inspector before the Auction, at least walk around the property with someone that at least knows a bit about building, or has a trade, to give it a basic look over.
No Cooling Off
Similarly, there is no cooling off and once the hammer drops on your offer then the place is yours without any right on your part to resile from the bargain.
That is why people always cheer and clap loudly at the end of an auction once someone has bought under the hammer. What they are really saying is “Thank heavens that wasn’t me.”
You never know too if any people who are bidding against you are genuine bidders. Although it is, strictly speaking, illegal now to have dummy bidders because all bidders have to be registered and identified by the Auctioneer, you are naive if you still think that dummy bidders aren’t out there.
Agents still have “friendly” bidders at Auctions and my observation is that Sellers often don’t even know about it or prefer not to know about it. In any case, the Auctioneer doesn’t have to give to you a copy of the list of bidders so you never really know.
The Day is Stacked Against You
The whole process is designed to put pressure on you as a Buyer so that you make a decision on the day. I mean, think about it.
- You don’t really know if there is a “friendly” (dummy) bidder in the crowd.
- The Vendor has the right to bid (a crazy concept really. Why would a Vendor want to bid for the purchase of their own property except to artificially increase the price that they get you to pay for it).
- The room will be full of pushy salespeople hovering around encouraging you to either make a bid or if you have made one, to increase it.
- Flashy photos of the property and the area will be continually rolling across the screen in front of you with upbeat music pumping up the atmosphere in the room. The subliminal message to you is –buy, buy, buy,…….. bid, bid bid.
No Get Out of Jail Free Card for the Vendor Either
The Vendor too can be seduced by the process and caught up in the stress and street theatre of the day. As the Seller of a property at an Auction you should be careful too to do your homework about the real value of your property.
Don’t be tempted to set too high a reserve and then on the day, under pressure from the Auctioneer and the salesperson, succumb to it and reduce the reserve price.
Do your homework with comparable sales in the area, set a realistic reserve at the last minute just before the commencement of the Auction and keep your composure when the push comes on to reduce that reserve.
Give Yourself the Edge
Who says that you must always pay 10% deposit at an Auction and settle 30 days from the fall of the hammer?
If you want to give yourself a bit more breathing space and place less financial pressure on you with the down payment of the deposit, ask the Real Estate Agent conducting the Auction to request that the Seller accept bids from you on the basis of say a 5% deposit with a 60 day settlement.
You will be surprised how often Sellers will agree to that request.
Obtain confirmation of the Seller’s agreement to this request in writing from the Agent so that when you make a bid at the Auction, if the property is knocked down to you on the day, your deposit will be 5% and you won’t be required to settle until sixty days from the date of the event.
So readers who have read this far into the article will see that Auctions are no place for beginners and the inexperienced. Research, preparation and education are the keys to successfully buying, and selling at an Auction.