Saw your dream Remuera home, perfect Mission Bay apartment or cliff-perched Glendowie or St Heliers mansion up for sale by auction? These four words “For Sale By Auction” may send shivers down the spines of many buyers. Painful experiences of losing at auctions and spending thousands on building inspections and legal fees are often common experiences of buyers.
But a smart buyer like you reading this post need not fear auctions. Owners of homes in the Eastern Bays and Remuera who consciously choose to sell via auction (rather than another method of sale) often have their reasons. There’s therefore an absolutely a great chance you can pick up a spectacular buy at an auction, especially in this property market when vendors choosing to sell at auction are in the minority.
So what should you do to buy successfully in an auction for your dream Remuera, Orakei, Mission Bay, St Heliers, Glendowie, Kohimarama home?
1. Do your homework properly
The first step to your successful purchase at an auction is to really do your homework. This means being very well prepared and work out the true market value (NOT the CV) of your home.
Study sales figures and CVs and visit a number of auctions of comparable homes in the same areas (for the Eastern Bays, that would mean Kohimarama, Glendowie, St Heliers, Orakei and Mission Bay) to work out the market value of your intended home.
Typically, I would advise buyers to look in the 2-km radius of that dream home that they want to buy because that’s usually where other competing buyers set their search parameters. For family homes that are in good school zones, it will make sense to look for homes that are within that particular school zone.
Visiting other auctions will also get you familiar with the strategies and structure in an auction. After all, you are unlikely to be buying a house every few weeks. Different agencies have differing ‘modes’ of auctions, with some allowing for vendor bidding or negotiations during the auction itself.
Then work out what that home is really worth to you, after consideration of all your financial and personal circumstances. Finally, come to the auction with 3 prices in mind.
- One you’d like to buy if there’s a discount – aka buying at a discount for a home that ticks off a few (but not all of the boxes)
- One what you think it’s worth – aka a price that you would be happy to pay (but not regret losing the home over) – this is suitable for a home that ticks off most (but not all of the boxes)
- One that you might be prepared to pay for it – aka the ‘stretch’ price that you are willing to go for that perfect home that ticks off all the boxes
The reason for working out all these prices is that you do not want to be considering or discussing such issues in the heat of the auction. Any pause during the auction suggests weaknesses, especially in the eyes of the auctioneer.
Know your bottomline before the auction, and stick to it.
2. Consider using a professional bidder.
Asking a real-estate agent or similar to bid on your behalf makes sense if you think the exercise may be too nerve-racking for you. It also gives you a plausible distance from the auctioneer, and so a little more breathing space during the auction. However, as mentioned above, I do suggest avoiding any pauses or delays during the actual auction.
Good communication with your professional bidder prior to the auction is key. The following points should be agreed.
- Maximum bid price
- The price when he/she should be checking in with you
- Increments (optional if you prefer to leave this to him)
Knowing these prices have critically important implications. Read on…
3. Bidding Strategies if you are DIY-ing
If you are having a go on your own (good on you as this creates memories!), then here are some tips. Remember, an auction is a competition – a competition between you, other bidders (if any) and the vendor.
- Don’t bid until you have to. But this does not mean that you should avoid bidding if you are the only bidder. Very often, there’s a lot of incentives on vendors to sell at auction (especially when the sale is unconditional) so there is a good chance for a bargain if you are the only bidder and setting the price expectations.
- If your maximum price is an even number, bid on an even number.
- Timing is key. Sometimes it makes sense to start bidding when the bids are about 80 per cent of what you hope to pay (read part 1 above about pricing). That will usually make the bargain hunters drop out and make other bidders realise you’re serious. Sometimes, if the room is relatively empty and there are one or two competing bidders, you may prefer a big first bid to knock them out of the water.
- Bid quickly and confidently. Be brave, so your opponents think you’ll pay whatever it takes. Putting in a bid twice the size of the increments the auctioneer is asking can be a good ploy to kick out weaker opponents.
- Study the room. Position yourself so that you can watch your rivals, and analyse their body language. Be aware of yours, too: other bidders (including professional bidders) and the auctioneer are all watching.
- Some especially ‘ famous’ professional bidders like to stand right in front and let the entire room see them. This is intended to create an intimidating atmosphere. You should not fall into their psychological trap – they have the same bidding rules and instructions to not overpay.
- Watch your own body language and don’t give away how much you like the house (easier said than done, I know!). If you give away how much you want it, you’ll tip the auctioneer off and they may choose to not accept small incremental bids, knowing that you will bid higher anyway.
- If you see your rivals in anxious or lengthy discussions, you’ll see they’re on the ropes and nearing the maximum. This is exactly why you need to be clear about your pricing and most importantly stick to it. Agree with your partner (if you are buying with one) beforehand that you are happy to walk away if it exceeds a certain price.
- It’s important to slow the bidding down when you’re closing in on your limit. You can consider halving your bid increments to $5000 about 20 per cent before your maximum, and halving the increments again to $2500 when you’re 10 per cent away. You can slow the bidding still further with $500 increments if necessary. Don’t take “no” for an answer. The auctioneer will always want to speed things up and put the pressure on you so you want to slow it down without showing weakness. Slowing the pace — and taking the heat out — of an auction can sometimes tempt your competing bidders to stop and reconsider their bids. But all these really depend on you reading their body language and knowing how strong they are likely to be.
- Set your limit slightly above a round number. Many buyers love to set bidding limits (due to mortgage pre-approvals) such as $800,000 or $1 million. If you can push it out to $835,000 or $1.17 million, the other bidders might just lose the auction to you.
- Be ready for the auctioneer’s mind games. Their sole job is to make buyers improve their bids. You can watch the auctioneer for signs the property may be close to reserve. If he consults with the vendor and it’s a short discussion, it probably isn’t close to the reserve price. If it’s a long discussion, it probably is. The vendor always has the right to decide to lower the reserve price.
- If the property is passed in but you’re the top bidder, don’t be too excited or enthusiastic about putting in an offer. You may consider offering a lower price but sometimes this may backfire – because the vendor would have sold it to you at the auction! Be fair and you may find that you can actually get the house at a better price than expected, especially when an offer is presented close after an auction has just been conducted.
4. What NOT to do in an auction
Just like there’s a bunch of bidding strategies to take note of, there are also several things you should absolutely avoid doing.
- Don’t go into an auction without having done your homework. If you win an auction, you are committed to purchase the property. You must pay the purchase deposit on the auction day.
- Don’t go into an auction without having agreed on a price with whoever you are buying the property with.
- Don’t take a whole bunch of friends and family members into an auction. Everyone (in your interest) wants to have an opinion but a family discussion before each bid will really throw off your bidding strategy and lets others sense weaknesses. After all, you are the one paying the mortgage. Have these discussions before the auction.
- Don’t go into an auction without having back up plans and properties lined up. You set yourself up for disappointment and you are more likely to break all your bidding rules when that’s the only property on the line and you desperately need to get it.
5. Other useful tips for buying at auctions
Finally, here are more tips you should consider adopting when buying at auction (or just buying generally).
- Talk to the listing agent (or your agent) to understand why the vendor is selling. This gives you greater insight into the pricing and vendor’s price expectations.
- Register your bidding interest early so that the real estate agent will let you know if there’s any pre-auction offers etc. The agent will have legal documents for you and your lawyer or conveyancer to review and sign.
- You can also consider amending the terms of the auction via an auction variation agreement. The common changes are around settlement dates, size of deposit and chattels.
- Your lender may want to know specific details about the property before you attend the auction, even if you already have pre-approved lending.
- When the bidding has reached the reserve price agreed by the seller, agent and auctioneer – established from feedback given by interested parties to the agent – the property is ‘on the market’. The auctioneer seeks to elicit all possible bids from buyers. The property will sell to the highest bidder, at the fall of the hammer. Going, going, GONE!
A note about vendor bids
Many buyers are confused by vendor bids. So what are these and when are they allowed?
Before the bids reach reserve, the seller or their representative can bid on the property to encourage buyers to get their bids closer to the reserve price. This is called a vendor bid. The auctioneer must make it clear when a bid is a vendor bid.
Vendor bids are only allowed when:
- the property has a reserve price
- the reserve price hasn’t been reached
- the bid is clearly identified by the auctioneer as a vendor bid
Hopefully with these tips, you can get that dream Glendowie home, Remuera mansion, St Heliers bungalow, Mission Bay seafront apartment, Kohimarama quarter-acre section or Orakei’s ridgetop house.
All the best in your auction!
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