The weather is warming up and a fresh crop of properties are bursting onto the market – many for sale by auction. But don’t let a sense of spring optimism get in the way of a sensible buying strategy. Auctions can be a minefield of emotions so it’s important to prepare for auction to help you keep a level head.
Auctions are highly public contests where every bidder wants to walk away the winner. Adding to the pressure cooker environment, some bidders may already have a financial investment in the property, having paid for building reports and a review of the sale contract by their conveyancer. Others will be emotionally invested, having drawn up mental plans of how their furniture will look in each room.
Under these circumstances it’s easy to get caught up in the excitement of an auction and bid beyond your limit. It’s a mistake that could cost you dearly, and it’s worth taking six important steps to prepare for auction day.
1. Have your home loan pre-approved
Having home loan pre-approval under your belt offers valuable advantages. It lets you bid with confidence knowing finance is in place. More importantly, the upper limit of your loan provides a clear line in the sand, firming up your buying budget so you know exactly when to stop bidding, and this reduces the risk of paying more for the place than you can afford. Talk to your Aussie Broker about organising home loan pre-approval before auction day.
2. Research the market
Auctions can be unpredictable and it’s often difficult to say exactly what a property will sell for on the day. So don’t assume the agent’s price estimate is bang on. Rather than setting your heart on a home that sells for way more than your budget, inspect similar homes in your area and monitor the auction results. It can give you a feel for how the local market is tracking and create a sense of whether the home you’re interested in is likely to fetch a price that’s beyond your budget.
3. Get to know the property… really well
It’s a no-brainer to organise a pre-purchase pest and building report for a property you plan to bid on. However, it also pays to visit the home, street and neighbourhood on different days and at a variety of times. This can highlight issues that may not be obvious during the advertised inspection times.
A street that is close to a train station for instance could become like a parking lot for commuters during weekdays, and that charming café a few doors down could be very noisy on weekends. Making an appointment to inspect the property at various times also lets you see how much natural light flows into the home throughout the day.
4. Build auction experience
Don’t let the auction of your dream home be your first auction. It can come as a real surprise to see just what goes on at an auction. The action is often fast-paced and the whole thing can be over in a matter of minutes (though it often feels far longer), and as bidders drop out, those who remain can feel an intense sense of pressure from the auctioneer, the listing agent and even the crowd.
Attending several ‘practice’ auctions can give you a good idea of what to expect in terms of the order of events, the atmosphere, and the speed at which everything can unfold. That way you can handle your own auction like a boss and focus on the bidding rather than being blown away by the theatre of it all.
5. Talk the talk
Auctions come with their own brand of jargon, and you need to understand what it all means because there may be no time on the day to clarify what the auctioneer is saying.
Key expressions you need to know include:
• Reserve price – this is the minimum price the vendor (seller) will accept. When the auctioneer declares a property is ‘on the market’ it means bidding has reached the reserve and the property will be sold to the highest bidder.
• Passed in – homes don’t always sell at auction, and if bidding doesn’t reach the reserve the property may be passed in, and the listing agent is likely to take up private negotiations with the highest bidder.
• Vendor bid – auction laws vary from state to state but the vendor is often entitled to make at least one bid (through the auctioneer). This is known as a ‘vendor bid’, and in states like New South Wales the auctioneer must make it clear when a bid is coming from the vendor. Why would a vendor bid on their own property? Several reasons – to maintain momentum if bidding is starting to stall, or to push bidding a little higher if it is just below the reserve price.
6. Develop a bidding strategy
As auction day approaches, it’s time to think tactics. You don’t have to bid in the increments suggested by the auctioneer. If you want to make a bid of $5,000 rather than $10,000 be prepared to say so when you raise your hand.
If you’re not confident about backing down when bidding goes over your price limit, have a trusted friend, family member or buyer’s agent bid on your behalf. Importantly, take some personal ID to the auction – you’ll need this to register to bid.
To organise home loan pre-approval or for more information on how to prepare for auction talk to your Aussie Broker.
