Auctions can be daunting for buyers who are new to the process. But once you get past the fear of declaring your buying intentions in a public manner, they can be an absolute breath of fresh air.
With an Auction, you can see exactly what other buyers are prepared to pay and decide accordingly whether you are ‘in’ or ‘out’. Experienced buyers appreciate the transparency of the Auction process, where everyone gets a fair go at securing the property.
Here are five steps to help you get ready…
Once the hammer goes down, the sale is final so you need to do all your homework before the Auction starts. You will want to speak to an experienced property lawyer to review the terms of the sale and obtain any specialist advice required before going ahead (like a building inspection).
This can put some buyers off since they don’t want to spend any money completing due diligence if they aren’t sure of getting the house.
If you feel that way, it’s worth remembering that owners who are selling via Auction are genuine and motivated. So at the very least, you shouldn't be wasting your time if you put in the work to get yourself ready to bid.
Get your finance approved
Most banks will give you written pre-approval for finance, which is subject to their final approval of the particular property you are purchasing. Buyers who want to bid at an Auction need to approach their bank well before the bidding starts and ask for unconditional pre-approval for the specific property they are interested in. The banks will likely want to see the Title, Land Information Memorandum, and any other associated documents the agency is providing for the sale.
Register your interest
Tell the salesperson running the Auction that you are interested in bidding. Let them know in writing (eg. by email). This is critical in case the Auction gets brought forward or any new information comes to light before the Auction starts.
Decide on your strategy
Some buyers like to place an aggressive opening bid to un-nerve the competition. Others will wait until the last minute before bidding. Waiting is risky if the auction is paused though, because if the auctioneer doesn't know you have interest in the property they may not look for further bidding from you before selling it to the leading buyer. So it's important to bid confidently right up until your max. Hesitating before each bid may encourage other buyers to keep going, hoping you are just about to pull out.
Get the terms right
Auctions usually have a fixed settlement date and a set deposit amount (usually 10%). You can sometimes negotiate these if you want to settle on a different date or pay a different deposit (eg. 5%) but you need to arrange this before the Auction starts. This is done on a 'Side Agreement'.
Bonus tip: Have some wiggle room!
Often, buyers go to an Auction saying “I will not bid a cent over $X” and then watch the property sell a few minutes later for only slightly more than their max.
Try to avoid missing out on a property you like for a small amount. Ask your bank to pre-approve you for a bit more than you think you will need before the Auction starts, just in case. You don’t have to use it if you don’t want to, but sometimes the extra $1,500 more will be the difference between winning at $901,500 or losing at $900,000 for example.
Frequently asked Auction questions:
Q: Will I find out what the reserve is?
No. This stays private between the Auctioneer, the salesperson, and the owners. It is usually decided the day before the Auction.
Owners want to be realistic. To help them achieve this, provide feedback to the salesperson during the campaign, after each visit, on where you think the reserve should be, based on other properties you have seen.
Q: What happens if the Auction doesn’t reach the reserve?
The top bidder usually has the first right to negotiate directly (and immediately) with the owner. Then, if a deal is reached, the Auctioneer will usually go back to the Auction room, announce the property as being ‘on the market’ and invite further bids from the audience before the hammer finally goes down.
This doesn’t always happen though, and some buyers are able to negotiate a situation where the sale is immediate and the property is not offered back to the Auction room at their negotiated price (rare but it does happen occasionally). Once the Auctioneer leaves the room there is no guarantee you will get another chance, so it’s always safest to be the top bidder when the Auction stops!
Q: Should I make a pre-auction offer?
If you are on a tight timeframe this could be a good idea. Bear in mind, your offer will need to be unconditional. If the owners agree to your pre-auction offer the Auction itself will likely be brought forward. Your offer will become the opening bid and reserve price and other buyers will still have the chance to bid against you (but they won't find out your offer price until the Auction starts).
Most owners are open to pre-auction offers but always ask the salesperson if that is the case before going ahead.
One final tip...
A great way to get comfortable with the process is to go along and watch a few other Auctions first. See if you can guess what the property will sell for and see if you can pick who the winning buyer will be before the bidding starts.
Auctions are a great way to buy real estate, but if you have any further questions, feel free to call me 021 582 485.