Property investors often ask for advice regarding how to maximise outcomes when buying property at auction. To this end, I have decided to share a recent article by Century 21 Australasia's Chairman, Charles Tarbey, which appeared in the October edition of Century 21 Wentworth's Property Investor.
Insider auction tips for spring
As a means of purchasing a property, I think it is fair to say that the traditionally competitive environment of an auction is not usually the preferred option for many investors. And after a prolonged period of somewhat subdued activity in the national residential property market - which has offered prime opportunities for privately negotiated sales - no doubt many active investors will have avoided the hammer entirely.
Nonetheless, savvy investors will know to keep their auction techniques well-honed, particularly as we start to see what appear to be improving auction clearance rates in some Australian locations. And with interest rates continuing to remain at historically low levels, coupled with new incentives in various states to encourage buying activity, investors may find themselves faced with an increasingly competitive auction market.
Should this be the case, investors would do well to seriously consider their approach before auction day. The following sets out how I personally would behave prior to, and at an auction, in order to fend off the competition and achieve the best possible result for my portfolio.
Bypass the auction process if possible
In the lead-up to an auction, consider your options - if you don't have to put yourself under the stress of an auction, then I would recommend that you didn't. Even if a property is advertised as going to auction, this doesn't necessarily mean that the owner won't be open to a private offer prior to auction day. In fact, as auctions can be quite taxing situations for vendors as well, many may actually welcome a fair and reasonable offer as a means of simplifying the process.
Take the time to talk to the selling agent to see what the vendor would be open to - a privately negotiated sale prior to auction may just be the most attractive option for both parties.
Consult the selling agents
Before auction day, and when attending the actual event, I always encourage buyers to consult the sales agents to obtain insights into both the property and its location. This is a practice that you would do if you were acting on behalf of a buyer, so it makes sense that you do the same when considering your own investment.
Come auction day, try to approach as many people on the ground as possible - this includes everyone from the person writing your name down when you walk in the front door, to the agents positioned around the property, and the auctioneer. Do not underestimate the importance of this field research - when people work together, they talk amongst themselves and hear opinions. Thus, you might be surprised at how knowledgeable some agents can be and the depth of valuable information you can glean from them - even those employed in the most basic positions within a real estate organisation.
Stay firm on price
In order to achieve the best result at auction, it is crucial that investors have a clear understanding of both what they can afford and their price limit (based on research and feedback from agents), and then stick to that limit on the day.
When you get to an auction it can be very easy to get caught up in the excitement - a few skilful words of encouragement from the auctioneer and suddenly an extra $500 bid here and there results in an additional $10,000 on the price. This is a real danger - I hear so many stories from both investors and home buyers who purchase property, but in doing so have paid more than what they had hoped or expected, and subsequently have had to rely on family or the bank to make up the shortfall.
If you have done your research, spoken to the right people, and have a clear understanding of what you can afford, then stay firm when it comes to bidding. A successful investment is rarely made when purchasing above what a property is worth in the heat of the moment.
Be strong when bidding
When placing a bid at auction - be sure to make it a very firm one. It is easy to be tempted to bid just a little bit above the offer of the previous bidder; try to avoid acting in such small increments as this will likely result in your competition simply continuing to bid. Conversely, by making strong bids in a decisive fashion, you can make a statement that will prove your intent to others.
For instance, say I can afford to spend $500,000, and I am at the auction of a property that I feel, based on my research, is worth the same. With bidding sitting at $477,000, I would be inclined to go to $490,000 to convey my seriousness, essentially shutting other bidders out.
When bidding for a property it is also very important to watch where you are bidding, making sure that you end up at an amount that is an even, not odd, number - for example, $490,000 as opposed to $489,000. Because you can rest assured that somebody will bid that extra one thousand, which could set off a flurry of smaller bids, potentially inviting further competition and unnecessarily prolonging the auction process.
Have somebody represent you
Auctions can be highly charged, competitive environments in which there is the potential for rational behaviour - essential for a successful investment - to fall by the wayside. I have seen auctions where egos get in the way - for instance in situations where people know, or know of, each other, and then bid beyond their original intention, not because of the value of the opportunity but due to their drive to win.
Asking somebody to represent you, whether it be a trusted friend or a professional buyers' agent, is therefore often a very sensible way to approach an auction, particularly for those investors who are first-time buyers, or haven't had a great deal of experience in the auction environment. Having somebody bid on your behalf also allows you to remove yourself from the immediate auction space, instead giving instructions from another location (or often even just from the back of an auction room) without having to resist the constant pressure from agents who may try to get you to change your thinking.
In the end, many investors will have to endure an auction at some point over the course of building their property portfolio. By arming yourself with as much research as possible, acting with a clear head and staying firm, investors can position themselves to achieve the best possible outcome come auction day.
For more information about the residential property market in your areas of interest, please feel free to stop by your local Century 21 Real Estate office for expert, clear advice.