The auction room can be an intimidating environment to first home buyers or potential buyers who have never bid at an auction before. However, there is certainly preparation you can do to increase your chances of successfully winning the bid and at a desirable price point.
Jesse Davidson, chief auctioneer at Auctionworks, shares his expertise and insights to help anyone to navigate the auction process, so that you can have the confidence to bid at one.
Properties most suited for auctions
First of all, it is helpful to know the types of properties are more suited than others to go auction.
- Property with less Complexity: Properties with less complexity are more suited to auction. For instance, a commercial property with straightforward leasing arrangements or a development site without complex zoning changes works well. Properties with significant complications, like mixed-use buildings with uncertain leases or potential for rezoning, are harder to sell at auction as developers need to assess varying feasibility options.
- Auction Reasons: Several types of properties are commonly sold at auction, including:
- Mortgage in possession: this is when a bank takes a property from a borrower who has defaulted. Auctions are used for transparency and to avoid complaints about underselling.
- Divorce cases: Properties tied to divorce settlements often go to auction to avoid disputes.
- Deceased estates: When an owner passes away and multiple family members need to make decisions, auction can simplify the process.
- Mortgage in possession: this is when a bank takes a property from a borrower who has defaulted. Auctions are used for transparency and to avoid complaints about underselling.
- Auction Process: The auction process removes decision-making from individual owners and helps maximise the sale price by presenting the property to a competitive group of buyers. Even high-priced properties can sell well at auction, as shown by recent examples like a $72 million sale and a $29.8 million sale in Eastwood, which defied expectations.
- Price Does not Matter: Auctions can handle properties of any price range, and higher-priced properties can sometimes perform better at auction, challenging the assumption that only lower-priced properties attract competition.
- Selling Strategy: An auction allows flexibility. If a property gets a strong offer early, it can be sold immediately. However, running an auction gives the seller a chance to attract multiple buyers, potentially driving up the final price. If a property doesn’t sell at auction, it can still be marketed in the following weeks.
In essence, auctions are effective for a wide range of property types, and the process focuses on minimising complexity to maximise value, whether for straightforward sales or more complex situations like bankruptcies or deceased estates.
Pre-auction checklist
- Secure loan pre-approval
Before attending an auction, it’s essential to get pre-approved for a loan. This ensures you know exactly how much you can afford to bid on the property and gives you confidence when it’s time to make an offer. A loan pre-approval will also help you avoid any surprises during the auction process, as you’ll have a clear understanding of your financing options and limits. - Contract reviewed and pre-negotiated
It’s crucial to have the property contract reviewed by a lawyer before the auction. A lawyer can help you understand the terms and conditions of the contract, and may also identify any clauses that need to be negotiated or clarified. This step reduces the risk of unexpected surprises after winning the auction and ensures you’re fully aware of your legal obligations and rights. - Decide on names for the contract
Determine in advance who will be named on the contract as the purchaser. If you’re buying as a couple, as an individual, or through a company or trust, it’s important to make these decisions ahead of time. This will help you avoid complications on the day of the auction, such as additional stamp duty implications or potential issues with ownership titles if the names need to be changed later. - Have deposit ready for direct debit (DEFT)
Be sure to have the deposit funds ready for the auction, typically 10% of the winning bid. Many modern auctions offer the convenience of paying this deposit via direct debit through systems like DEFT, eliminating the need to organize a bank check. Ensure your account has sufficient funds to cover this amount, as the deposit is typically due immediately upon winning the auction. - Decide on your budget and maximum bid
One of the most important aspects of preparing for an auction is setting your budget. It’s easy to get caught up in the excitement of the bidding process, but it’s essential to decide beforehand how much you’re willing to spend. Set a firm maximum bid and stick to it, regardless of the emotions that may come into play during the auction. Auctions are high-pressure environments, and sticking to your limit will help you avoid overpaying for a property. - Bring photo ID
On the day of the auction, ensure you bring an accepted form of photo identification, such as your driver’s license or passport. This is a requirement for registering to bid and confirms your identity. Not having ID on hand could prevent you from being able to participate in the auction, so make sure this is packed in advance. - Register to bid
To participate in an auction, you must complete a registration process, which typically involves filling out an “authority to bid” form. This step is essential; without registration, you cannot bid. It’s important to do this early on the day of the auction to ensure you don’t miss the opportunity to place a bid when the time comes. - Arrange someone to bid on your behalf if you can’t attend
If you’re unable to attend the auction in person, arrange for someone to bid on your behalf. This could be a trusted friend, family member, or a buyer’s agent. You’ll need to provide them with an authority to bid, and they must be well-prepared to represent your interests at the auction. Make sure you communicate your maximum bid clearly to avoid any confusion during the auction.
By ticking off each item on this checklist, you can approach the auction process with confidence, ensuring that you’re legally prepared, financially clear, and ready to make informed decisions.
Five Winning Auction Strategies
The speaker outlines five strategies for winning at auctions, explaining their nuances and how they can be deployed effectively:
Strategy 1 – First Mover
Being the first to bid can set the tone of the auction and demonstrate intent. By placing an initial bid, you show the auctioneer and other bidders that you’re serious and engaged, which often results in favorable treatment throughout the auction. It’s not about winning the auction with your first bid, but about signaling your interest early on to keep you in the game.
Strategy 2 – The eBay Strategy
This strategy involves waiting until the final moments to place a bid, much like sniping in eBay auctions. While it might seem like a clever tactic, it’s described as a risky move. The auctioneer can extend the auction, and by the time you place your bid, it may be too late. The risk is that the auction could close before your bid is accepted, and you may end up losing the property.
Strategy 3 – The Tennis Rally
This strategy is about responding quickly to each bid in a back-and-forth style, much like a tennis rally. By matching the other bidder’s offer immediately, you create an impression that you’re fully committed and have no intention of backing down. It shows that you’re in it for the long haul, potentially intimidating the competition into dropping out. This tactic works best if you’re confident and know your limits, as it can help you maintain control over the auction’s pace.
Strategy 4 – The Grinder
This strategy involves consistently participating, slowly pushing the price up, but without escalating too quickly. It’s a strategy for experienced buyers who know the market and are comfortable with incremental bidding. The goal is to create pressure on the competition by subtly increasing the price, but not so drastically that it triggers a rapid escalation. It works well if you have a solid budget and know how to handle the auction dynamics.
Strategy 5 – The Wild Card
The wild card is all about throwing out unexpected bids to confuse or disrupt the auction flow. By placing a random or unusual bid, you create uncertainty for the auctioneer and other bidders. While this can throw off less experienced auctioneers, it’s not always effective against seasoned professionals. It’s more about unsettling the competition than securing the property.
Conclusion
In conclusion, success at bidding at an auction is as much about participation as strategy. Understanding how to interact with the auctioneer, engaging early, and sticking to your budget are key components of success. Finally, doing research on the auctioneer’s style at other auctions and adjusting your strategy accordingly are also ways to maximise your chances of winning.
We wish you all the best!
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