Buying at auction: What you need to know
Bidding at auction can be a daunting process for some. It can also be a thrilling roller coaster for attendees.
For both of these sets of people, there are certain problems that can arise when you are in the room, and being aware of them could save you thousands of dollars. It could also be the deciding factor between getting the house you really want, and settling for something that just isn’t right.
Following these steps can set you on the path to purchasing the property you actually want, and paying the right amount for it:
1) A buyer’s agent can be your guardian angel
Employing somebody that attends an auction with you might seem like a strange concept, but they come highly recommended.
A buyer’s agent from Cohen Handler will understand the market so that your bids can be well placed.
Realestate.com.au suggests using a property agent to help with the bidding because of how they will operate differently to you. They are not emotionally invested, but work closely with a set of specifications that you provide including an absolute top limit. They have a practised bidding strategy as well, which many personal homebuyers do not.
Research from St George Bank suggests that 62.1 per cent of people do not have a strategy in place while bidding at auction. From the same data, more than 50 per cent of those surveyed have missed out on a property, and 55.4 per cent did so because of the bidding process itself.
A buyer’s agent will also ensure that you know the true value of the property you are bidding on. Without knowing exactly what you should be paying for a house can leave you uncertain with your bidding, so understanding what it is worth will help dramatically. For example, knowing that more than 30 per cent of sold houses are by auction in Melbourne and Sydney, according to CoreLogic data, could give you the edge as a buyer. In Brisbane and Adelaide the figure is significantly lower, both falling below 8 per cent. A buyer’s agent from Cohen Handler would understand and have researched the markets appropriately so that your bids would be well placed to secure you the right patch of real estate.
Having a helping hand by your side can also be incredibly beneficial, whether you are in the room too or are away and could not make the auction itself.
“It means you’re out of the emotion of the auction room, and won’t get carried away by the moment,” said Scott Smith, chief auctioneer at Ray White NSW to Domain Group.
Employing an industry professional with experience at auction is a strong move towards getting the right property.
2) Is the location right for you?
Whether you are buying for your personal residence or an investment property, making sure that you are in the right city and suburb for your needs is important.
CoreLogic data suggests that properties in Sydney had a median price of $810,000, and that the value had increased by 12.8 per cent over the year from 2014 to 2015. Melbourne saw a similar increase of 11.8 per cent to $602,500, whereas Perth decreased by 4.1 per cent to $499,000.
Purchasing an investment property means wanting to add value over time to your portfolio. Properties are great investments for doing this because they are not subject to instant fluctuations in the markets like a stock portfolio might be, but thorough research will show which areas are the best for your needs.
For instance, Melbourne’s Box Hill would be an ideal suburb for this kind of growth. Smart Property Investment (SPI) lists Box Hill as one of the highest-growing suburbs at the moment, projecting a median annual growth over 10 years of 11.99 per cent. Such increases in value, which are already at a median price of $1,380,000, would be excellent for property investors wanting to see large returns in the future. Over the 10-year period, great increases are predicted and within a three-year period the median growth is listed at 81.22 per cent.
Properties are great investments for adding value to your portfolio because they are not subject to instant fluctuations in the markets.
Investors looking at rental yields should focus on different values, though. A suburb such as Berkeley Vale north of Gosford in New South Wales, which SPI lists as having a gross rental yield of 8.59 per cent for a unit, would be perfect for this requirement. Properties with a higher yield will be more effective investments because of how they return value. With a rental property, often there are very little overheads that cannot be met by the costs of the rent, so they are seen as more affordable investments for some because they are basically self-sufficient.
For a homebuyer looking at a private residence themselves, getting into a suburb that is experiencing heavy increases in value might not be so cost effective. Rather, finding a suburb that attracts you and has also recently experienced a decline in value could see some bargains popping up around it. Looking into the Perth market could be a great option, because of lowering house values, but if changing cities altogether does not suit, making an effort to find the right property in your current location can be a big ask.
Buyer’s agents aren’t just for helping at auction. A professional who spends their time researching and marking potentially beneficial areas for buyers can help you through this process, and take a lot of wasted time and stress away from you. Not only will they know exactly what to look for, but they will stay away from suburbs they know could potentially cause problems over time.
Finding a property that is just right for you can be as simple as looking at where it is located around Australia, and that can help to make much more effective choices at auction.
3) Personal strategies for bidding
If you do not want your property agent to bid for you or even alongside you at auction, then employing an effective strategy will help you to take the room by storm and not be beaten on the real estate you have your eyes on.
St George Bank research found that an enormous 48.2 per cent of people felt unprepared heading into an auction. The first step in strategising your bidding is to do the research and understand the data that an agent provides. Making sure that you aren’t a part of the 17.5 per cent of people who experienced insomnia leading up to an auction is also going to allow you to be refreshed and awake for when the going gets a little tough.
Graeme Hennessy, the chief auctioneer at the independent Premier Property Auctions, believes that too many people stay away from bidding first at an auction.
“It’s not going to cost you anything, as you’ll rarely buy a property on a first bid. But if you’re there, starting the process, then experience shows us you’ll have a better chance of still being there at the end,” he said to Domain.
Couple that with advice from Scott Smith about projecting confidence from the centre of the room, and you’ll be off to a good start.
“I’ve seen a lot of people missing out at auctions, time and time again, hiding away at the back,” he said.
Stay true to your existing ceiling value and bid as soon as someone else outbids you. Make the most of your research before the auction began and ensure that the true value that you and your buyer’s agent worked out is clear in your mind. As soon as you lose sight of what value you assigned the property, the bidding can become emotional and you may end up paying too much.
Talk to the team at Cohen Handler today and see what their services can do for your auction strategy.