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Australia Real Estate Auctions: Things You Should Know About

January 19, 2021

Preparing for an upcoming auction can be daunting when you are a first time attendee. There’s plenty of things you should take note of to avoid falling into a disadvantageous position.

What makes real estate auction enticing?

Auctions are exciting propositions for all parties involved including the vendor and the potential buyers for a few reasons

  • Vendors can focus all the buying activity from a campaign into a single point in time with a sense of urgency. This draws out buyers to out bid each other and thus increasing the eventual sale price rather than a traditional sales campaign which may have many offers that are drawn out over an extended period of time. In essence, auctions allow for an increase in the final sale price in a shorter amount of time compared to traditional sales campaign.
  • For buyers, the appeal of auctions is that the bidding process is 100% transparent and they can make bids according to their maximum budgets. The buyer may potentially come away with a bargain if the bidding demand is low or by using various auction tactics to make the eventual winning bid. It also means that even if a property is “passed in”, if they were the highest bid then they have also secured the first right to negotiate with the vendor thereafter.

It’s important to prepare before the auction

There are plenty of things you can do prior to an auction to help you understand the market and make the right decisions

1. Plan out your budget

Decide on a budget you’re willing to set aside to purchase the property. What is the price you’re starting out at? What is the maximum amount you’re willing to spend? Participants who do not plan their budget well give away obvious tell-tale signs that they are running out of money during an auction. These signs can easily cost you your dream home.

2. Research research research!

The importance of research can’t be emphasised enough, after all, knowledge is power. For starters, open market reports are extremely insightful. Look at the macro-economic trends in the property market, then zoom in on the property cycles of individual states followed by suburbs.

What’s the current auction clearance rate? How much was the property sold for previously and what about their neighbouring houses? What about future development plans? Only by understanding these numbers and trends will you be able to know what you’re getting yourself into. For example, a low auction clearance rate may indicate that it is currently a “buyers’ market” and you can play your auction strategy accordingly.
You can do your research by speaking to local authorities, research property websites as well as on ground conversations with residents and agents.

3. Pre auction offers

Pre auction offers are for those of you who have set eyes on a property and are eager to secure it without bidding openly against others at an auction. A pre auction bid gives you the an opportunity to negotiate on the property instead of waiting for the auction date.

Be sure to make your pre-auction offer in writing. In this offer, communicate your price and interest. Pricing is very important and this is also where your research comes into play. Be sure to offer a realistic and reasonable price and not something that is miles below the seller’s expectations.

Apart from the offer in writing, you should have a contract and the deposit ready in the event your offer is accepted. Lastly, set an expiry on your offer to show urgency and to mitigate the seller being able to “shop your offer around”.

4. Body Language at an auction

Watching out for body language during an auction can easily give you an advantage to secure the winning bid. By watching how bidders behave, you can tell when they are reaching their limit. As mentioned earlier, signs like looking at their significant other or making nervous eye contact may show hesitation in bidding, and can be indicators of a buyerreaching their maximum budget.

According to Ms Lauren Goudy, a buyer’s agent at Rose and Jones, basing your maximum bid on due diligence rather than emotions, having confidence in your decision and being prepared to walk away are the keys to controlling these signs.

With a good understanding of body language, you can effectively estimate the right time to deliver the knockout bid. After all, at an auction, it’s all about crushing your opponent’s hopes, sending a clear and definitive message that you’re giving them no chance at all. So, make sure to keep an open eye out on how your competitors are behaving.

5. Bidding Pace Of Property Auctions

Here’s something you might have never thought of. The winning price is heavily influenced by the pace of bidding and the value of increments. In fact, many bidders make bids in round numbers.

According to auctioneer Damian Cooley, avoiding round numbers is a strategy that can work well for buyers.

This means that instead of starting the bid at $600,000, one could start it at $595,000. This will cause future bids to have an increment of $5000 rather than $10,000. By controlling the value of increments, you’re able to bid in small increments to near your budget and make big plays.

One example of such big plays would be seeing the bid reach the value of $790,000 and your budget is $800,000, you could break the existing momentum of $5,000 increments and jump straight to $800,000.

This disruption in momentum is sure to show your confidence to participants and give you the chance to bid in at your maximum amount.
When the reserved price is not met, it can lead to the property passing in. This means the seller has to consider selling the property for less than anticipated or has to extend the marketing campaign.

However, if the reserved price is met, the auctioneer will declare that the reserved price has been met and the property “is on the market and will be sold”.

This will increase the bidding pace as some buyers will only put in the first bid when they know that the reserved price has been met.

If it’s within your budget, it might be a good time to put in a bid as it may well be the winning bid for your dream home.

6. Auctioneer’s Traps

Auctioneers themselves employ a variety of techniques to encourage buyers to push the price up. All of these techniques have one objective in mind, which is to instil a sense of urgency in you, the buyer.

For example, auctioneers might call the property “first, second, third” on bids to encourage buyers to place their bids. Ranking bids would cause a sense of urgency in participants based on the fear that they are going to miss out.

Another great example would be the grabbing of the gavel, which is often associated with meeting the reserve and selling. Auctioneers might just grab the gavel despite not meeting the price they want to put pressure on the buyers.

7. Location Matters

Ever wondered why people always told you to be early to the auction? It’s for various reasons and one of the main reasons is to get a good location. A good view of the room, your competitors. By getting a good view, you’re able to observe everyone.

As mentioned before, the body language of bidders gives plenty of insights to how likely you are to win. With a comprehensive view of the whole room, you’re able to gauge the buying ability of your competitors.

Choosing the right location when you reach the auction early is also optimal as it allows the auctioneer to have a clear sight of you should you decide to bid.

Conclusion

Understanding auctions is not something that is attained just from a single attendance. We recommend that you go to several auctions and experience everything for yourself. Take note of the environment, how buyers bid and observe some of the scenarios that we’ve mentioned above. Knowing these indicators might help you have an upper hand in your next auction.

If you’re looking for more auction tips, you can click here to read our 8 strategies for winning at auctions.

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