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29 Nov 2023
Heading to an auction and not sure what to expect?
You're not alone; auctions can be intimidating and confusing. There can also be a tendency to go overboard and overpay.
Check out our 10 tips for buying a home at auction to best equip you through the process.
Prior to attending an auction, obtain a home loan pre-approval. This is a conditional approval from your lender, which is still subject to:
(i) buying an acceptable property
(ii) an acceptable valuation
(iii) no changes in your circumstances between getting pre-approval and seeking final approval
It typically lasts three to six months and although not legally binding, gives you a great foundation on which to start your house hunting.
It also puts you in a better position come auction time, as throughout the bidding process you have a clear idea of your limit. Should you be successful, you'll also be in a great position to write a deposit cheque on the spot.
Auctions are a high-stress, high octane environment, and the bidding is a real skill; there's a reason buyer's agents exist.
Before you attend an auction on a property you plan to bid on, visit as many auctions as possible.
Familiarise yourself with the processes and observe the different bidding strategies.
Remember not all auctioneers are the same, so being familiar with the experience will massively assist you.
Before you even begin looking for a home to bid on, it's important to prepare yourself for the experience. One thing to undertake is proper market research in order to know the type of market you'll be entering into as a buyer.
Data like auction clearance rates, median sale prices, average days a property is on the market and the median rental yields for the area (if you're purchasing for an investment) will help you to narrow down the list of appropriate properties for your short list.
Do your research and inspect lots of similar properties in the area to see what they sell for.
In doing so, you'll be equipping yourself with the ability to identify your absolute limit and when to walk away.
If you're looking at renovating in the future, ask the selling agent if anyone else in the street/block has completed renos recently.
This will give you an idea of how easy it would be to increase the value of your property.
On the auction day, keeping your cool is an important thing to practise. One of the main pressures associated with auctions is the competitive edge that comes with multiple people bidding on the same slice of real estate and it can be quite intimidating.
Going along to a couple of auctions beforehand and getting a good feel for the environment could be beneficial in the long run, giving you a taste of the action before the main event.
Real estate agents are very good at obtaining important information from potential purchasers, such as the price you're willing to pay.
Giving away information like this can take negotiating power out of your hands and makes you open to agents leveraging other buyers against you.
By not sharing specifics you maintain an advantage and reduce the opportunity to be manipulated.
A solicitor will be able to expertly navigate the vast and complex sale contract and pick up on things that you may have missed or don't understand.
For your protection, have a solicitor check the contract, so you're aware of the sale conditions and your rights and responsibilities.
You can also organise any amendments to the contract that they suggest.
A house is more than likely going to be the most expensive purchase you make in your life, so it's important you check it's not going to fall over right after you buy it.
Make sure you look at all the necessary structural, engineering, building and termite reports, as well as any legal title information.
This will protect you from paying for the cost of damages that you only discover after the sale.
Auctions can be a rowdy affair; it's important to call out your bids loudly, clearly and confidently.
Make sure you state your bids in the whole dollar amount rather than the increments the auctioneer is calling out. For example "$605,000", not "$5,000".
It's easy to get caught up in the allure and excitement of the bidding process, especially if you've already got attached to the house.
However it's not a race, and slowing down the process pressures the seller to reduce the reserve price.
Taking your time and displaying a calm persona and assertiveness will project confidence and can give you a psychological edge over other bidders.
Furthermore, having a definite limit to your spending is essential. The tendency to push your bidding as far as possible to beat out your opponents may seem like a good idea, especially if you've fallen head over heels for a certain property, but keeping your wits about you and knowing your financial limits is better in the long run.
Provided you've done your preparation, you'll be familiar with tricks of the trade like "first phase" auctioning and "dummy bidders".
The beginning of many auctions often start with dummy bids by agents and sellers, that are used to draw genuine bidders in.
The agents and sellers will then reconvene, after now identifying the key bidders, at which point the second phase of the auction begins with a declaration like "on the market".
You can maintain an advantage in these situations by hanging back and not bidding until the second phase starts.
Be prepared to miss out; auctions are highly competitive, particularly in today's market.
Stick to your pre-approval amount and/or your walk-away price. Provided you've done your research, you should know the value of the property, so don't get drawn into overpaying.
If you miss out, then it wasn't meant to be and look forward to finding something better.
It's better to walk away than to commit to an overpriced property which could become a negative asset.
If you're already emotionally attached to the house, consider getting someone else to bid for you, like a family member, who won't get overcome with emotion.
Want to learn more tips and tricks? Check our guide to buying a home at an auction.
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