Buying a property at an auction can be extremely nerve-racking and stressful.Is there anything that you can do to help you come out on top, but not overpay?
Auctions offer a degree of uncertainty, and perhaps their greatest draw is for investors looking for an unexpected bargain. But it also increases the challenge. With a competitive field around, coming out on top without overpaying is a difficult task.
Sellers who go to auction often do so for a good reason - their property has something unique about making it easy for buyers to get caught up emotionally and bid above their ceiling price when there is enough competition. Bargains can just as easily swing in favour of the buyer as well, though.
Even for an experienced investor, a large interest from other parties can make a purchase process seem daunting, especially at auction. Those who have come out losing at an auction when trying to buy a well-liked property may wonder to themselves if they could have done something better.
Successful strategies can never guarantee winning bids across the board, but they can help you get an edge over the others.
We detail some of the top tips by experts for pulling on top when buying your next investment property in a competitive market.
1. Dress to impress
Getting an early edge might start with your personal appearance, say many experts.
At a past auction in Sydney's historic The Rocks held by Auction Works, about 40 people attended the sale of three properties for mortgagee sales. All three were sold at the auction.
The bidders included a smiling couple who brought their young children along with, a young lanky man in jeans with nervous eyes and a beard down to his chest, and a businessman in suit jotting something down on a notepad.
It's no doubt the latter of the three came out looking the most professional and perhaps even intimidating.
"Dressing to impress can create the impression that you have an endless budget and can intimidate others so they stop bidding earlier," says Frank Valentic, a buyer's agent and director of Advantage Property Consulting.
Pino Tedesco, formerly a buyer's agent and director of the Metropole Investment Strategists Sydney office, now director with Capital Property Advisory says he always wears a suit at auctions.
"The reason I do that is that I like to show that I'm professional," he says. "That knocks out some people who haven't done (auctions) before, or not too often, and I tend to bid very confidently."
2. Make yourself noticed
If you come in looking sharp, people will likely notice you. But it doesn't hurt to make everyone see you anyway, says Valentic.
He suggests parking a prestigious car (if you have one) at the front of the property if it is on-site, then stand next to the car. It's a similar effect of being well-dressed - psyching out your opponents.
Valentic also suggests sitting up front, where you can get a good view of the competition.
In a large room with chairs, however, standing in the back might give you the best overall picture.
No matter where you stand, Tedesco suggests calling out your bids confidently.
"To the novice, I sound confident, and it tells them I may go for it (with further bids)," he says.
That contrasts to other Sydney auction mentioned above when some bidders mouthed to the auctioneer meekly, "that's my last bid," or "no more."
It also doesn't hurt to sometimes spell out the entire amount of your bid. Don't just say $520, say $520,000.
"That gets the other people to say, "Wait a minute, that's a lot of money,'" says Tedesco.
3. Don't reveal your cards too early
Before you even show up to the auction, it's important to keep your bidding limit secret. Don't' reveal this type of information to the real estate agent in charge of selling the property. Giving out this clue can only serve to hurt you.
"Never reveal where your cards are at to the agent prior to the auction," says Tedesco. "As soon as the real estate agent knows that, they can basically play the room, play the venue."
Speaking to an agent ahead of time can be beneficial, however. Ask the agent how many section 32 and building report requests have been made, says Valentic. If there's been about six or seven, expect to be up against about half that number at the auction, he says.
Sometimes bargaining with an agent at the auction can end up costing the bidder as well.
At the Sydney auction mentioned, one man put in a bid of $370,000 on a one bedroom apartment in Sydney's CBD. After counting to two, the auctioneer admitted the reserve price had not been met.
After an attempt to drum up further bids failed, the man was asked by an assistant to the agent to consider raising his bid to an acceptable $380,000. He did, but not long after that bid was made, another bidder jumped back in and called out $385,000. The man responded by calling a $386,000 bid. That price eventually won the property, but Tedesco says sometimes its best to just let the owner pass the property in, allowing for negotiations to take place with no other bidders.
"I would not have put in another bid, I would have let it pass in," says Tedesco. "Especially if I were the last person to make the bid, because then I'm negotiating one on one. Then I've got more control."
Still, that strategy can be risky if it's a property the bidder really wants. Negotiations don't always come out fruitful.
"Without hindsight, who knows what would have happened had it passed," says Tedesco.
Another strategy regarding the reserve price is to keep asking the auctioneer if it has been met, says Valentic. Unless a certain level in price has been reached, you are not playing for keeps.
"If you continuously ask the auctioneer if the reserve has been met and that you won't bid any further until it is on the market, it may pressure the vendor to lower their reserve price," says Valentic. "Once the property is on the market, you are playing for keeps as the next bid buys the property."
4. Timing your bid
It is common at many auctions to see some bidders lurking mostly unnoticed in the back, only to appear just before the gavel falls to steal the property with a crushing last-minute bid.
Yet such a strategy doesn't always work. There's risk, for one, that the auctioneer will be too quick and close the sale before you can get in that last offer.
"Most people I think still have this idea of not bidding until the end," says Scholes. "It's a big risk, it really is. If the auctioneer knocks down the sale before they can bid, it can't be reopened."
And just because you come in late doesn't mean you'll always come out ahead.
"Some people say late bidding is good, and I've seen one buyer's agent do extremely well using that strategy," says Tedesco. "She'll stay quiet until she firmly believes it's going to be the last bid."
Ultimately, even if the property passes in, you want to be that last bid because it gives you negotiating rights post-auction.
David Scholes of Auction Works suggests bidding early in the auction can be effective too. But rather than going right to your top price, start a little bit under to allow some room to keep bidding.
"It's almost offensive when some buyers make a bid that's half what the property is worth," he says. "It's ridiculous. My suggestion would be to generally carve 5% to 10% off the final price and put that as an opening bid."
5. Consider help from a third party
If you are worried you'll become too emotionally attached to a property, sometimes its best to send a representative in your place. You could also send a family member or trusted friend, for example. Hiring a buyer's agent is another option.
Either way, by removing yourself from the equation, you can eliminate the possibility of you bidding too much by getting caught up in the moment.
"As a buyer's agent, I don't get emotional about it," says Tedesco.
There is a cost involved, and that's something one must weigh into how much they value having help at the auction.
"A buyer's agent is a professional who usually has much experience in taking the stress and emotion of an auction away," says Valentic. "They are an independent third party that make sure that you don't get carried away."
Some investors think they can do it on their own, however. For them, Valentic advises keeping a cool head and doing lots of research.
"Have some flexibility, but don't let emotion let your heart rule your head," he says.
6. Understand the market
A different market can make for a very different competition. Checking the auction clearance rates is one way to understand what you're up against.
"I'd be very careful buying at auctions when you get a clearance rate like that," says Tedesco.
Owner-occupiers need to especially watch out, as they can get sucked in to a bidding war.
"I've seen a lot of owner-occupiers really go over their head," says Tedesco. "That's what the auction is for. These auctioneers want to get emotions involved."
Usually the properties are unique as well, making it easier to become attached.
"They are great outside auction, but inside auction, I found some people get really silly," says Tedesco.