I often wonder why people are so afraid of buying at Auction. It is nerve wracking I know and yes you may miss out, but that could happen in a normal negotiating situation.
Having been on all sides of the fence, bidding at auctions as well as selling my own properties by Auction and with 15 years of conducting hundreds of auctions I have a few tips to share.
1. Do your homework – You need to know what is happening in the market and selling/sold in the area. The agent handling the sale should be able to provide you with the recent sales in the area so you can compare. Check out what else is on the market and how long it has been available at the asking price.
2. Know the Agent – Find out if the agent normally takes the property to Auction or sells them prior. Ask who the Auctioneer is and if they bid on behalf of the Seller (disclosed bids by law?). Find out if the Auctioneer will open the bidding if no one else will and at what level. If possible attend another Auction of the agents/auctioneers to see how they handle it.
3. Advise of you interest – Be sure to tell the agent you want to be advised if another offer comes in. Under the code of conduct if you do this the agent must advise you before selling the property. Make sure the agent has ALL your contact details. If they do look like selling prior there may not be a lot of time for them to advise you and it can all happen after hours. You don’t want them to leave a message on your work or home number for you not to get it in time.
4. Know the terms and get ready
Deposit – Most auctions are 10% deposit and the balance in 30 days. However, there are plenty of situations where the owner will vary these terms and allow perhaps 5% deposit and a longer settlement period. Be ready and able to pay the deposit on the day. Make sure you have access to a cheque book or you can get a bank cheque ready.
Finance – Auctions are not subject to finance so arrange preapproval. Some banks will require a valuation so this should be done before the auction. Remember it will also give you a guide as to the value for auction day.
Building & Pest Inspections – It is becoming more common for the sellers to arrange & pay for this. Check with the inspectors and see if you are successful can you have the reports transferred to your name. If reports are not supplied, you need to arrange your own before the auction. It is an expense but worth the money as it protects you and you know what you are bidding on.
Contracts – Get a copy early with a title search so you know if there are any easements or special conditions.
There are expenses and time preparing for an auction and you may be concerned what if you spend money and are not successful? The advantage is your deposit and finance will be ready for your next purchase and offering cash & 10% deposit will put you in a position of strength.
Remember you can negotiate and buy a house subject to inspections and finance and find out the house has problems. If you do not proceed it is the same scenario, where you have paid for reports etc and still need to find another house.
5. 4 Prices
Both the owners and the buyers usually have several prices to consider. Take time to think about your prices and get them clear:
The price you would be over the moon to buy it for. You are confident you have bought well and are happy.
- A fair price – you think this is about the market price and are OK with buying it at this price.
- More than you would like to pay but will do so if you have to as it is a good property and suits your needs.
- Then of course there is a figure – no way, someone else can have it and I will walk away no question.
6. Be clear on the process
Ask whether or not the Auctioneer will:
– Opening the bidding if no one else does?
– Bid against you if you are the only bidder? (In Queensland the Auctioneer has the right to bid against you as many times as he likes provided it is not at the reserve price or above. He must disclose that he is bidding on behalf of the seller)
– Declare the property “On the Market” Real Estate Jargon for it has passed the reserve price and will be sold.
Other Points to note:
– The auctioneer must by law call the property three times before selling the property. He will say something like “ For the first time, for the second time or second call, third and final call and then sold to ….hopefully you J
Where possible see the Auctioneer in action before the day so you can see how he handles the situation. If not ask Questions of the agent or auctioneer so you have a clear understanding of how it will work on the day.
7. Preparing Your Strategy
Think about your different strategy options.
Are you going to open the bidding, come in strong and make your presence felt?
Are you going to sit back and let others control the auction?
If the highest bid is not above their reserve, what price will you pay to secure the property?
Remember if it is passed in, you open the door for other buyers who are subject to finance etc and most importantly, you DO NOT have the first right to negotiate with the sellers. Once the property is passed in it is free for all parties to make offers, negotiate etc.
Most sellers are ready to sell on Auction day, so this is the best time to negotiate with them. If you do your negotiations during the auction, it is fast and this is why it is important to think about your 4 prices beforehand. This process is much easier than a normal negotiation where there is lots of waiting to hear back and you cannot see your competitor if it is a dual offer scenario. You can sometimes negotiate for days or weeks and still miss out if someone else comes along at the last minute. At auction you know your competition and usually the owner is there and can make a decision quickly.
My advice is if you will pay a certain amount for the property then give it your best shot on auction day. Don’t let someone else buy it after for a price you would have paid!