Updated: Apr 13
In a seller's market, it is not uncommon to see properties being listed for "Auction". With almost every good properties listed for "Auction", you will have no choice but to be prepared to put your winning bid at these property auctions. What do you need to know at auctions? How do you bid? What do you need to prepare? What strategies do you need at the auctions? How do you win at the property auction?
If you've come to this blog to learn how to beat the auctioneer, turn back now. The auctioneer is NOT your competitor. The other bidders are. The role of the auctioneer is to facilitate the auction. Or is it?
Based in Melbourne, our buyers advocates attend and bid at over a hundred auctions a year for our property buying clients. On a busy weekend, we can be bidding at between 3 to 5 auctions a day. We've seen different strategies being used, all sorts of games and distractions, all sorts of tactics used by agents and auctioneers to conjure an emotionally charged atmosphere.
What is an auction?
Back to the basics first. What is an auction?
Quite simply, an auction is an open bidding competition between interested buyers. All interested buyers for the property will come together at a set place and time, and everyone start shouting out the price they are willing to pay for the property. This bidding session is facilitated by a licenced Auctioneer, whose job is to make sure the bidding process is held in an organised manner.
What do you need to know about auctions?
Auctions are usually an emotionally charged, tension filled 20-30 mins process. At times, the bidding activities may be slow, in small increments, and long delays between bids, while at times, the bidding can be fast, in large increments of tens of thousand dollars, and with split seconds counterbiddings. Again, this is facilitated by our dear Auctioneer.
It is important to know that, in most states in Australia, properties bought at auctions are unconditional. There is no cooling off periods, no ifs, no buts. There is no walking away, if you are the successful bidder. And, everyone should also know it is illegal to disrupt an auction. What you said you will pay at the auction, is legally binding. There is no backing out.
How do you prepare for the auction?
Given the high stakes involved at the auction, how do you prepare for the auction? How do you make the right auction preparations, to prevent yourself from some serious, unintended consequences. What preparations do you need? While some suggests that you need a lot more preparations, there are only 3 basic things you need to prepare:
1. Do your due diligence.
Doing your due diligence is critical to preventing yourself from buying a property that doesn't suit you.
Understanding what you want from the property, why you want the property and your plans for the property. Knowing the real market situation will help you understand the market condition for that property type, in that particular street and in that particular pocket.
If you are a home buyer intending to live in the property, ask yourself:
Do you like the location?
Does it have the right school?
Does it have the right transportation - train, tram, highway, bus, etc?
Does it have the right environment?
Does it have the right amenities?
Do you like the vibes you get when you are in the area?
If you are an investor and intend to put the property on the rental market, ask yourself:
What rent can the property fetch on the rental market? Is that good enough for you?
What are the vacancy rates? How long will it take for you to find a tenant?
Is the property in the right location for the types of tenants you want to attract?
Does the property meet the minimum rental standards in its current condition?
What else do you need to do, to bring the property up to minimum standards?
If you are a developer and intend to develop the property, ask yourself:
What types of properties are buyers looking for, in that location, on that street?
What are the development potentials for the site and location?
Does it have the right zoning, overlays, council plans, features?
How will the local council look at your development proposal?
If you are loaded and just want that property, ask:
What price will knock out all other bidders?
Will the agent accept an 'irresistible offer' before the auction?
2. Know the real price of that property.
Most buyers wrongly believed the price guide in the Statement Of Information (SOI) provided by the sales agent. While the SOI aims to give you an indication of the price for the property, it usually does not mean the auction will end within the price range indicated in the guide.
You should always do your own homework.
Find out what other buyers and bidders are willing to pay for the property.
Find out what similar properties in the area are sold for.
If your research is very different from the price guide in the SOI, always feel free to ask why the agent thinks it should be so different. There could be a gold plated toilet in the house. Or a few embedded 1kg gold bars in the bedroom. Or a subterranean termite infestation. Or a history of flood and/or water damage. However, more often than not, you are likely going to get a standard reply "that's based on sales data. We cannot predict how much buyers will be prepared to pay at the auction"...
A good independent buyer's advocate who knows the area, location, street, buyer demand, supply situation, buyer demographics, property characteristics, will be able to confidently give you an idea of the auction price range. At Concierge Buyers Advocates, we overlay our understanding of the area, with our data analytics, to derive a price guide for all properties we are bidding for. With the exception of a few outliers, we have been able to accurately estimate the selling price of the property.
If you need help, our guide to determining the value of a property will give you some ideas.
3. Know your budget.
With the due diligence done in steps 1 and 2 above, step 3 is the next critical homework you need to do. Steps 1 and 2 helps you understand your limits. Step 3 helps you set your budget.
Budget is critical. Always remember, buying at auction is unconditional. You CANNOT back out, if you win the auction. Make sure you:
Know how much you can afford to pay.
Know your serviceability.
Have sufficient funds for the 10% deposit.
Have the appropriate way to pay the required deposit on the day of auction.
Be prepared. Always assume you will win the auction. Our auction bidding service lets you know what others are likely to pay for, and what price range is considered appropriate for the property. With these information, determine what the property is worth to you. Set yourself 2 limits.
Limit1. The price you are willing to pay for the property.
Limit2. The absolute maximum price you are willing to pay for the property. A good test to know if you've set the right Limit2 is this: ask yourself "if the property is sold for $100 more to someone else, will you regret walking away".
If these two numbers are way less than what others are willing to likely to pay at the auction, consider if you should even turn up at the auction. You might be the lucky bidder with no other competitors, and walk away with the property for a good price. These days, this scenario is highly unlikely to happen though. We will tell you why.
Note: Intentionally under-bidding, hoping to grab a bargain is just going to waste your own time, the agents' time and everyone else' time. You'll be reducing your own credibility and creating a bad impression amongst the agents and buyers in the area. Another reason why this won't work is this: All properties at auctions have a reserve price. This reserve price is set at what the vendor and agent think is the fair value for the property. So, even in the unlikely scenario where you're the only bidder, you will still be expected to pay fair value anyway.
4. Stick to your budget.
With the above preparations done, you are now all set for the auction. On the day of auction, be sure to arrive early. The listing agent would usually have a final open for inspection just before the auction. Turn up, have one final inspection of the property. Introduce yourself to the agent and let them know you will be bidding.
Review your budget limits. You have one last chance to review and revise, if you need to. You should not have the need to adjust the numbers if you have done the due diligence in steps 1 to 3 diligently.
Experience tells us, bidders who attempt to bid on their own WILL almost certainly change the budget at this very last minute. It is ok, if you change because you have to. But It is NOT ok if you change because you want to. If you want to change the limit at this very last minute, you will almost certainly walk away from the auction with regrets:
If you win the auction, you will be wondering if you have overpaid.
If you lost the auction, you will be blaming yourself for not spending that extra $100.
How to bid during Auctions
Many have also ask what our preferred auction strategies or bidding styles are. Some common theories advocated by some buyers include:
1. Be confident
Confidence is to prepare you for the pressure, and emotions created in the auction atmosphere. There is no shortcut to this. Practice, practice, practice. Practice and be comfortable bidding with a clear, loud voice. If you have a naturally soft voice, or you are not confident in public speaking, you can get an assisting vendor agent to help you. This can be both good and bad, as the assisting agent will definitely use this opportunity to stir your emotions. Some commonly used techniques include:
"Another $1000 will knock the other bidders off",
"Put in a $5000 increment. This should scare the others."
"I know them. It's at their limit. Another $3000 will stop them."
The auction bidding service at our Buyers Advocacy agency helps our clients bid confidently. We make our role known to the auctioneer and any assisting agents, and we always ask assisting agents to stay away. We believe our clients should be shielded from the pressure and emotions of the auction.
2. Power Dressing
Some believed power dressing helps portray a sense of confidence. Arrive in your Lamborghini, gold sunnies, LV trench coat, Gucci briefcase. Having attended and bidded at hundreds of auctions, unless it is your dress code or you are performing your duties as an agent, power dressing as a private buyer will only usually help the rookie bidder feel confident. Ultimately, an amateur's body language will give him/herself away. We've seen quite a few winning bidders in shorts and tongs, by the way. So, attire plays no part in helping you win the auction. If anything at all, it helps other bidders identify who the rookie is...
3. Body Language. Poker Face?
Body language is by far more important than anything else. But relying solely on body language can and will mislead you too. Heard of "Poker Face"? A Poker Face can be trained. So can the "Nervous Face". We seen "Poker Faces", or the "Aggressor Faces" lost at auctions. And we will tell you why at the end of this guide.
Our buyers agents are trained to study the bidders and auctioneer and we adapt our bids and behaviours to suit the situation.
4. Use Big Bid Increments
Some say big bid increments will scare the competition and let you create the sense of deep pockets. It is partially true. But this only work against amateur competitors. Only the amateur bidders will think twice about beating your bid. If you intend to use this strategy, use it with caution though. Used at the wrong time, with the wrong increment, this strategy will backfire badly. We've seen someone put in winning mega bid increment, knocking out all other bidders. Secretly, we believe he overpaid badly for the property.
Professional bidders like us use huge bids to speed up the auction and lock out lowballers.
5. Use Small Bid Increments
Small bid increments is a tactic used by most rookie bidders and other professional bidders to delay the auction. It also gives an impression of a bottomless budget, as the bidder seems to be able to dig out an extra $500 from thin air. It would potentially scare the amateur competition by exuding a sense of deep pockets too. As experienced bidders, we have ways to counter the small incrementers.
Having discussed some frequently used auction strategies, we are sad to say, there are no fool-proof or sure-win strategies. As professional auction bidders, we read people. We analyse and profile each bidder, study their bids and use a combination of strategies to counter them.
Auctions are Just Games. Here's why.
At the end of the day, over 90% of the auctions end within the expected price range of the property. That means, it doesn't matter what strategies or styles you use, price, budget and the competing bidders ARE still the determining factors.
You only have that one chance to try to buy the property, and your offer is unconditional. Doing the right due diligence with the right data; and having a good understanding of the market, the property and who the potential buyers are will help you either put in your winning bid or walk away satisfied, knowing you have done your best. After all, you probably do not want to beat an over-bidder, at an auction.
If you are going to attend an upcoming auction, but you do not have the confidence to bid or do not know what you need and how you should prepare for the auction, it might be worthwhile engaging a professional auction bidding service.
Our professional Auction Bidding Service is popular with hands-on property buyers who are either unable to bid or not confident to bid at auctions. We provide auction biddings for up to 3 auctions, guides our clients throughout the auction preparation process, and shields our clients from the pressure and emotions during the auction process.
Get in touch if you're keen to find out more.
Last but not least, good luck with the auction. Get in touch if you want to learn more.