It is the one method of sale whereby potential purchasers not only see the person or people competing with them for the property, but they are also able to see exactly what the other parties are offering. If the bidding is well below the reserve price, or below any price which the property may eventually sell for, the vendor’s counter offer is also made publicly through the auctioneer.
All details of competing offers in all other methods of sale, such as price by negotiation and tender, are entirely confidential. Potential purchasers do not know who they are competing with, the level of competing offers or even whether other offers are conditional or unconditional.
It is important to let your salesperson know that you have interest in a property to ensure you are kept fully informed of all developments and to ensure you are contacted should a pre-auction offer be made.
So what are the tips for purchasing at auction?
When you buy at auction, the sale is 100% unconditional - there is no provision to review finance, request building checks or even to check the accuracy of the title. All these things including obtaining legal advice must be done prior to the auction. Ensure your solicitor reviews copies of all legal documents including the Auction Terms of Sale, title and LIM and know exactly what is included in the sale.
Again check the LIM. If the property has cloth covered wiring, or if there are any defects, obtaining insurance may be an issue. Satisfy yourself as to any building or structural matters – you may wish to obtain a building report from a reputable company specialising in “pre-purchase” inspections. The salesperson will disclose to you any known defects with the property. (These will also be disclosed in the written Auction Conditions of Sale).
Under the current conditions, it is increasingly difficult for first home buyers to gain bank approval, but you must be completely certain of your total purchasing ability (how much the bank will lend) on auction day. We always advise people to arrange finance a little beyond what you would like to pay – property is a long term investment and nothing is more frustrating than losing your dream for the sake of a few thousand dollars. It pays to go slightly above a round number as people often arrange finance up to but not over this point e.g. being able to push slightly over the $700,000 mark to $705,000 might just be the extra needed to secure the property.
Check the settlement date. If you have a preferred date, this may often be negotiated, but must be agreed with the vendor prior to the auction. In most circumstances you are legally entitled to a pre-settlement inspection. This is a final time to inspect the property carefully. The property is sold and should be in the condition it was in during the marketing. If the home has any new defects such as a cracked window, or a listed chattel is not in reasonable working order then it is advisable to point this out to your solicitor.
Bidding on the Day
Do Your Homework
There’s no such thing as too much research. It is essential that you have a good understanding of the market value of the property you are interested in. Study sales figures and auction results for the previous six months to ascertain what comparable properties are selling for. Calculate which properties you can afford by thoroughly researching the market rather than looking at starting prices and CV's.
Know your limit
We always recommend that buyers come to an auction armed with 3 prices -What you’d love to buy it for (bargain price), the price you expect to have to pay and the absolute cut-off point if competition drives the price beyond the maximum you are able to borrow.
Everyone has their own bidding strategy. Some people like to start low or hold off while others like to come in high or place larger bids so their opponents think they will pay whatever it takes. The truth is every auction is different and dependent on who your competition is, their personal financial situation, how many people are competing and what strategy they deploy on the night. If the bidding is slow or no potential buyers make an opening bid the auctioneer may choose to place bids on the vendors' behalf in order to move bidding towards a price level acceptable to the vendor. Any vendor bids will only be exercised by the auctioneer at his discretion and will be below the reserve price and below a price level which the vendor would consider accepting (Therefore helping buyers to buy – not penalising them in any way).
If bidding stalls on a property but the figure is within range of a vendors' expectations then the auctioneer has the discretion to negotiate with the highest bidder. It pays to check or inquire about the company's auction terms before auction night or at least before the bidding starts if you are unsure. Auction terms can vary between real estate companies with some offering exclusive negotiation rights to the highest bidder if the property doesn't meet reserve while others will ask all bidders on the floor if they are interested in making a higher offer.
If the property does not reach a level that the vendor is willing to sell for, it is passed in and all offers are put on paper and anonymous negotiations occur. From this point on you have no knowledge of your competitors' offers.
Watch the room
People's body language can give away a lot. If you see your rivals in lengthy discussions or making phone calls it may well indicate that they are close to their limit. Arrive at the auction early and grab yourself a good position to watch your competition from.
Have a Plan B
There is no better feeling than buying your dream home. It can also be very deflating to miss out on a property that you set your heart on. Having another property to focus on helps minimise the disappointment. You may have lost the auction but remember you have also learnt a great deal about the current market and will be more prepared for the next auction.
Remember, with auctions the vendor has invested a reasonable sum of money in a serious marketing campaign so they are motivated to sell.