Spring is here, the grand final has gone and that means another auction season is underway. If you are looking to buy a property and attending auctions here are some tips that i recently picked up from Philip Middlemiss, Director at Stockdale & Leggo.
Rule 1: Know your maximum purchase price
When looking for property it is vital to know the maximum purchase price you can afford. I suggest that once you have that figure subtract 10%! Do not over stretch yourself and bite off more than you can chew. If you are unsure what you can afford then I can help you work this out.
Rule 2: Don’t tell your friends
As soon as you tell some friends that you are interested in (or even looking at) a particular property they are likely to appear at the “open for inspection”. Before you, or they know it, the agent will have found out that they are “just looking” because a friend (you) want to buy the property…with friends like these, who needs enemies.
Signalling to the agent your strong interest in a property will increase the pressure the agent can apply to you and a good agent will always be able to use this information to extract the maximum price from you. So be careful who you tell about the properties you are looking at.
Rule 3: Know your market
Be armed with past sales information at the open home. This allows you to engage the agent around the subject of price and make them justify the asking price they are quoting. Information is power.
You can either purchase this from RP Data or you could your friendly mortgage broker or estate agent to help out. This report will also show you trends within the suburb which is vitally important when the most comparable home sold was 12 months ago.
Rule 4: Leave the rose coloured glasses at the door
There is no such thing as the perfect home. There will be something wrong with every property you look at. The key is spot the difference between a cosmetic imperfection and something far more drastic.
A building inspection report can help you identify issues with the property and distinguish between minor v major problems.
So don’t be put off by flaking paint, worn carpet or the holes in the backyard dug by Disco the dog. Generally speaking location, size and price are more important than condition.
A poorly presented home should excite you as it will put off a number of your competition and give you the chance to touch up the property in your style, which will make it feel like your home lots quicker.
Rule 5: Make an offer before auction
If the home is perfect then others will probably think so too. At auction this will probably mean lots of competition with the result that the property will go for a higher price.
So try to eliminate the competition early and ask to make an offer before auction. If the agent says no we are going to auction and the home is Owner Occupied – knock on the door! Auction campaigns give the agent 4 weeks of great branding at the vendors expense. The majority of Vendors would sell before auction if they could agree on price. Vendors are likely to be as nervous as you about the upcoming auction.
To consider this strategy you need to have your finances in order and be pre-approved by a lender already as this strategy will only succeed if you can make an unconditional offer to buy the property.
Rule 6: Express interest but keep your cards close to your chest
A few days before the auction you should expect to hear from the agent. If you like the home, tell them…but don’t tell them everything. A good agent will use reverse engineered scripts to extract a price from you. Avoid doing this at all costs. Tell them you are not sure yet.
If the agent is really pushing for information then ask them for the reserve price. They won’t be able to give you one, so your response should be that without a reserve price you could not buy it anyway. So you can leave them with the message “I am interested and I look forward to seeing you at the auction”.
Rule 7: Have a plan and stick to it
The auctioneer has a plan for the auction they will know at what price they will open the bidding, if Vendors bids can be placed and what the reserve price is. You should have a plan too. The plan should include at what price you will enter the bidding and what your maximum bid will be. Then no matter what stick to it, in particular your maximum purchase price.
Before you reach your maximum limit start to slow down the bidding. The auctioneer may be asking for increases of $10,000 ask them if they would take $1,000, if they say no, try again after the next bid and keep trying. If they do accept your bid of $1000 you may be getting close to the reserve price.
Rule 8: You are in control
Pressure will be applied by the agent at the auction. Especially as they close in on the reserve. They will say things like: “You have been with me all the way… I know you have it in you… we had interest higher than this before auction… You have been through the home many times…”.
Remember the agent has worked for 5 weeks pre auction to win the business, market the home, introduce purchasers, set reserves and ultimately get the home sold. If an agent is only a few thousand dollars away from being paid for all this work, you will know. I have heard members of the audience respond with “if you only need another $1000 why don’t you take it from your commission – Nice car by the way”.
No matter what, only bid when you want too.
Rule 9: Maintain your calm
Auctions can be a stressful experience. You need to remain calm and collected as there is lots going on and lots of pressure. A drink before the auction to calm your nerves might sound like a great idea but it is definitely not a thought that should be entertained.
If you think that you will struggle to remain in control then consider getting someone else to bid for you. You could consider asking a friend or family member to bid on your behalf.
Alternatively, you could enlist the services of a professional like a Buyers Advocate who is experienced in bidding at auctions and might be able to use their skills to help you get the property for less than if you had bid for it yourself. Either way, you should give written instructions to the person bidding on your behalf so there is no confusion.
Rule 10: Do not exceed your budget
Do not exceed your budget as it will place you under greater financial strain and the consequences of not being able to make your loan repayments are severe.
There are over 3500 properties for sale in Victoria as we speak. So whilst it seems the current property you really want is “The One”, there will always be another great property that will come along.
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