Buying A New Home At Auction?
It’s pretty safe to say that given the sheer amount of money involved in the traditionally competitive environment of an auction, it’s not always the preferred option of first home buyers. Even for an experienced property agent, large interest from other parties can make the process of purchase seem intimidating. They are an ever-popular part of selling real estate, especially when there is strong demand in the market and sellers are confident they can fetch a good price for their property.
According to CoreLogic RP Data, there are around 2,000 auctions every week in our capital cities, with the large majority happening in Sydney and Melbourne. One of the benefits that an auction holds over a conventional private treaty sale is that there is no cool-off period. If you have the winning bid and contracts are exchanged and signed by both parties, the home is officially and unconditionally yours. While a solid strategy can never guarantee you victory on the big day, it can give you an edge over your opponents and assist in keeping your emotions in check. Here are five things you can do to help build your confidence and reach your goal of property ownership.
The art of an auction is to garner the biggest sale price possible.
1. Be a spectator
As they say, one of the best ways to learn is through experience. Investigate real estate websites to uncover what auctions are on and where. Ideally, you want to attend auctions for homes that are similar to what you would like to purchase, both in terms of location and type of property. While you bask in the almost palpable energy of the crowd, study the process of the auction and how it works, in addition to the varying strategies of the bidders involved. The more auctions you attend, the more comfortable and confident you will feel when it comes to your turn. According to Consumer Affairs Victoria, the seller, property agent or auctioneer can’t divulge the reserve price of the home, therefore it’s up to you to determine the market value. Another benefit of attending several auctions is that you will be able to get an idea of the finance required to purchase the home you desire.
2. Get pre-approved
It’s crucial to have pre-approved finance before you start making any bids at auction time. While the lack of a cool-off period can be seen as a benefit in most cases, there is a downside. You could find yourself in hot water if you purchase a property via auction, only to find out afterward that your lender won’t let you borrow the required amount. Knowing you have the backing from your lender can give you peace of mind prior to auction day, and allow you to bid with confidence. Furthermore, being aware of your maximum limit can temper your bidding fingers and prevent you from overspending on a property.
3. Understand what the market is doing
How the market is behaving will often dictate the way an auction proceeds. According to CoreLogic RP Data, the clearance rate for auctions in Australia in 2015 has been extremely high, especially in Sydney and Melbourne.
A market like this can mean bidding for homes consistently meets and exceeds sellers’ reserve prices, which indicates heated competition in the market. First-time owner occupiers should be wary of this kind of environment, as it can be easy to be sucked into a bidding war with other prospective buyers, some with much deeper pockets.
“For the first time in history since 2007, the market has touched $6 trillion. We have never seen values this high.”
— CoreLogic RP Data (@corelogicau) August 2, 2015
4. Make your interest known to the property agent
After attending the open home, if you believe the property is the one for you then it is important that you let the property agent or seller know. Given the right offer or perhaps a change of circumstances, a vendor can make the decision to sell their home before it goes to auction, pulling the rug out from under your feet. To show your interest, request a sale contract from the property agent to review with your solicitor, before returning to the property to make further scrutiny and to make measurements. If you want to make sure, you can use a professional to inspect the property, as they will be able to confirm if there are any significant problems that could prove costly down the line. However, never reveal your bidding limit. It’s vital that you keep this information close to your chest, as while the property agent can be helpful, they’ve got the seller’s best interests at heart.
5. Choose the right time to bid
There are a number of opinions associated with timing your bid, although some can be quite complex. In a report from Genworth, Australia’s 2014 “Auctioneer of the Year” Will Hampson states the three most common timing tactics are:
• Bidding strong from the beginning with the intention to take out some of the other buyers and place yourself in the box seat early.
• Sneaking a bid in just before the gavel drops. This can be risky, though, as it is possible that you could place your offer too late.
• Placing unusual bids ($2,000 when the auctioneer wants $5,000 for example) in an attempt to slow the auction down.
It all depends on how the auction is progressing. For example, if the auction has slowed down and only rising in small increments, Hampson recommends going in boldly and adding $5,000 to intimidate other bidders and shut down the auction. In spite of these strategies, if you’re a first-time buyer it can be a good idea to place an early bid just to get into the flow of things and relax your nerves. An auction is a nerve-wracking experience for both the seller and buyers.
6. Be confident
It’s likely that as soon as you enter the auction site, people are going to be judging you like a book’s cover in terms of your threat to them. Thus, it would make sense to be dressed in your Sunday best and stroll in like you already own the place. HSBC Bank Australia recommends being (or at least appearing) self-assured and confident, as a strong bidder can create a distinct psychological advantage over their competition.
7. Use a buyer’s agent
If you would like to avoid the sometimes intimidating process of navigating your way through the numerous traps of an auction, you should consider a buyer’s agent. Whether you need a Melbourne or a Sydney buyers agent, there are several benefits to using a property agent when purchasing a home, regardless of the selling method. In addition to bidding on your behalf during the auction process, further benefits of a buyer’s agent include:
• They can help you to find your ideal property
• Exclusive access to homes that are off the market
• Because of experience, the ability to read auctions and determine a suitable strategy
• Removes the possibility of your emotions getting the better of you
• Negotiate with the seller and property agent as your representative
• Assist with the entire process of the home exchange
What’s more, a buyer’s agent will often have access to a network of professionals who can assist you in your home hunt, such as building inspectors, conveyancers and brokers.