Even in a calm market, purchasing a property at auctions can be challenging. And when bidding wars are raging, it may get a bit daunting for some.
Joust shares some tips, strategies and tactics that can offer you a competitive advantage while bidding at auction. This information will help you know what to expect and master the auction game as a buyer.
Why Buy at Auction?
Auctions are a terrific option for a home purchase since they provide significant advantages, which include:
- A Straightforward Process: Auctions are one of the most transparent and suitable ways to determine the property value based on what other buyers are willing to pay. On auction day, all prior negotiations are secondary compared to actual bids.
- Speed and Certainty: An auction may be one of the easiest and fastest ways of buying a home. Once you’ve made the highest bid, you can rest assured the property is yours. On the other hand, you may have to negotiate a lot at private treaty sales, with less certainty about the outcome.
- Set Date of Sale: With an auction, all know when the property will be sold. However, at a private sale, the seller may withdraw the property from the deal if they receive a higher offer.
- Time to Research: Your conveyancer or solicitor can use the auction campaign period to do due diligence. Further, you can inspect the properties before signing up.
Let's look at some proven auction tips and winning strategies which you can employ in the competition to get your dream home.
1. Preparation is Key
Before placing a bid at an auction, organise your finances and get pre-approval for the funds. You can then face the auctions knowing what you can and cannot afford.
Consult with a lender or mortgage broker who can help determine your borrowing capacity. Alternatively, you could use Joust's Online borrowing power calculator to gauge how much you can borrow.
You must be careful not to overbid because there is no opportunity to back out of an auction. However, if you place an excessively high bid, you may have to breach the terms of the sale contract, which might result in financial or legal fines. On the other side, you risk leaving the race early if you underbid and misjudge the worth of the property.
Because of this, you must recognise two essential concepts right away: your pre-determined budget and the market.
Similarly, due to the finality of the sale at an auction, it's a good idea to conduct building and pest inspections before bidding.
2. Experience An Auction Process Prior
You'll get less intimidated by auctions the more accustomed you get. So you don't want to attend your first auction to place a bid.
Attending weekend auctions will help you better comprehend the auction scene by exposing you to the procedure, tempo, and terminology. Another great way to keep an eye on the market and confidently place a bid is to attend auctions close to where you intend to purchase.
3. Use Your Selling Agent Effectively
The selling agent should endorse the case for why a property should be sold at the asking price. In addition, you should request information on previous comparable sales.
Likewise, running inquiries before buying a target property is suitable for purchasers eager to raise the investment through home modifications in the future. Request your agents to check if nearby properties have had any renovations. That will give you a notion of what you can and cannot accomplish. Sometimes, the local agent could help you to visit a property that has undergone renovations and pest and building inspections.
At the same time, avoid giving the seller's agent any information or revealing the price you are willing to pay. It could work against you during negotiations. This does not suggest that you should be evasive; instead, you should convey that you're an eager and genuine customer.
4. Get to Know the Real Estate Agent
Although it may be alluring to blend in and remain invisible, the estate agent and auctioneer must notice you and recognise you as one of the prospective bidders. Therefore, establishing a connection with the estate agent is a terrific idea.
By demonstrating that you're sincere about purchasing, you'll get to the top of an agent's list for early notice of other eligible properties. In addition, you'll also gain an advantage over other bidders in the run-up to the bidding on the actual auction day.
An excellent local agent can also provide you with the expert support you need to manage yourself successfully during the bidding process.
5. Arrive Early to the Auction
To place a bid at an auction, you must legally register. State-to-state variations in this process are possible. A valid photo ID and evidence of residence may be required.
Following successful registration, you will be assigned a unique bidding number that will be used to track your bids and your identity during the auction.
On auction day, be there at least 30 minutes before the auction starts. You could assess the property and the surrounding area at this time, keeping an eye on your rivals and the sellers.
Generally speaking, it pays to get to an auction early. You'll be able to select the comfiest seat for you in this manner. You'll read a lot of advice on where to sit at an auction to appear to be a serious bidder, but once you've attended a few sales, trust your judgement.
6. Put Your Bid in Early
Get engaged as soon as the auction begins. You may make the first offer and make it a competitive one. By bidding early, you'll make yourself known and start to impact the auction.
Bidding commonly occurs rapidly. Therefore waiting until the end to enter doesn't have a benefit. After all, if you wait too long, the auction could end before you ever get a chance to place a bid.
It is advised to open your bid high so that you may eliminate a few of the competitors right away and be seen as a serious candidate.
Here, it's crucial to find the closure near the reserve. Remember that a house won't sell below the reserve, so you may be successful with this tactic if you bid boldly while considering your budget and the reserve.
Call out the whole amount in your bids, not just the increment. Finally, call out your bid loudly and confidently to show other attendees that you are committed and prepared to pay the proper amount.
7. Show Confidence in Your Body Language
If you become overwhelmed by the heightened sense of urgency in the auctions, no amount of planning or information will matter.
Your confidence in placing your bid will be just as important as the money you offer. Confidently calling out bids or making a loud gesture to the auctioneer to indicate your bid ensures that they recognise your bid and that you are still in the race.
Use a buyer's agent if you are nervous about placing a bid on your own or want to maintain your anonymity. They are qualified professionals who acquire homes on behalf of buyers.
Regarding the competition, body language can indicate when they may be reaching their limit. Signs like hesitation, making phone calls, a serious conversation mid-auction with a partner or agent, or partners looking knowingly at each other are usually good giveaways.
Finally, also watch the auctioneer's body. Talking fast usually indicates the bid may be approved, while slower speech patterns suggest that the auctioneer is still trying to draw a better bid.
8. Counter Bid Effectively
Once a counteroffer is made, you may show that you're serious by making your own right away. This will also enable you to see who your rivals are.
To counter-bid more than your budget is not a smart idea. Instead, your loan from the bank plus whatever deposits you have built up should constitute your maximum borrowing capacity.
Place odd-numbered bids
This tactic can upset the other attendees' momentum and cause chaos. Therefore, for the bidding to continue in even amounts, the starting bid is usually made at an even figure, typically proposed by the auctioneer.
A straightforward yet helpful strategy while bidding at an auction is to interrupt the flow by placing a random odd-numbered bid. It will cause the other bidders to pause, consider their options, and determine where the bidding stands.
9. Control the Speed of the Auction Process
By placing a bid, you can influence the path the auction takes. Set your own speed and go as gradually as you like; don't feel rushed by other bidders. This may help to keep the purchase price low.
For example, if there's a call for a larger bid of $15,000, you could take it at your own pace to $10,000 at the time.
According to several experts, avoiding round numbers is a solid auction bidding strategy that lets you adjust the pace. Bidding in strange, odd increments might confound the opposition and make them less competitive. Additionally, while the auctioneer adds up the bids, the auction's speed is slowed.
10. Know Your Budget Limits
Set a pre-determined upper limit on your offer in advance. It would help if you did this when you are still composed and can select a reasonable quantity.
An auction's main objective is to get the vendor the best price possible. Decide on your maximum and abide by it because of this. You may confidently bid this way and stay out of the overbidding pitfalls.
Further, try to get pre-approval from your lender. Then, if you place the winning bid, you should be ready with the finances to put down your 10% deposit.
Our mortgage payment calculator can help you get a rough idea about your regular loan and interest repayments.
The auctioneer has the right to halt the process at any time to ask the vendor for counsel or instructions. This provides the seller with an opportunity to speak with the auctioneer about the status of the bidding.
After the final bid, the auctioneer may call “sold” or announce that the property has been passed in. Here's what they imply.
When a property is passed in, it implies that the top bid has not met vendor expectations.
If you feel an auction will pass in, try to be the highest bidder. It will give you the first right to negotiate the reserve price with the seller. If possible, try and find out the reserve price. Also, try to know the lowest price they'll likely accept.
The property is considered sold if both parties agree on a price. If not, the vendor may re-evaluate the campaign with their agent.
You Win the Auction
If you've won the auction, here's what will typically follow:
- Deposit and Sale Contract: You will have to pay your deposit (or deposit bond) if you win the auction. Typically, this represents at least 10% of the cost of the item. So, when you go to an auction, it's crucial to have payment ready. You can pay with a personal or bank check for 10% of the purchase price. Of course, the deposit will be more than 10% if you win the auction at a price below your maximum, but this only results in a reduced house loan obligation. Additionally, you must sign your contracts. There’s no cooling-off period when you buy at auction, so you can’t change your mind after you put in the winning bid. Ensure you are aware of the requirements in your state or territory.
- Legal Checks on the Property: Your solicitor or conveyancer will typically run legal checks on the property and then confirm the settlement date with the seller’s legal representative.
- Finance Approval: If you have received pre-approval, you’ll need full approval. This process usually takes 3-5 days if all the required documents are submitted on time. Furthermore, your lender does a property valuation before approving your loan to ensure you have not over-bid.
- Sign the Home Loan Contract: Once your mortgage is formally approved, your lender will send you a letter and mortgage contract to sign. Have your conveyancer review the terms before signing. Since all mortgage contracts have a time limit, don’t delay the signing.
- Settlement: One final inspection will be done just before settlement. Then, on the settlement day, your lender and conveyancer will hand over the documents and final payment to your selling agent.
Your conveyancer will need to ensure the transfers are registered with the title office. Once this step is completed, you can collect the keys to your new home from the real estate agent.
Joust Can Help
Regardless of the auction outcome, if you're looking for a home loan, Joust's reverse auction tool may be just the breather you need after the high-paced intensity of an auction.
The live auction platform on our Online Marketplace enables home loan providers to bid for your business in real-time. And you get a suitable deal without trawling through endless options.
Home loan providers cannot see your personal details, and you're not obligated to accept any offers.
The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.