Tips for buying at auction

Herald Sun | Tony Rindfleisch | Oct 2008

Auction day has arrived. You have spent the past six months trawling through the suburbs, inspecting properties, checking prices and quizzing estate agents.

Dozens of people wander through the property you want to buy with glossy brochures in their hands making hushed comments when the auctioneer calls for their attention.

Your heart is pumping. You repeat to yourself the figure that you have agreed with your partner will be the upper limit of your bidding.

But do you bid first or wait for someone else to show the lead? Do you bid hard or offer small amounts to slow the auction from racing ahead?

What are the auction traps to avoid and what are the tips to ensure you have the best chance of winning the property at the lowest possible price?

Estate agents and buyers' advocates (who make a living buying properties for others) say there are no fixed rules when it comes to the complex art of buying at auction.

Auctions can vary in many ways and the preferred method of handling one might alter from one to another, depending on the level of interest in the property, the closeness of the quoted price to sales prices of comparable properties and whether the property is put "on the market" during the auction.

Most experienced buyers agree it is best to be assertive when bidding. Don't be afraid to ask questions of the auctioneer and offer figures smaller, or bigger, than the price being called for.

Author and advocate Patrick Bright recommends buyers attend at least a dozen auctions before they buy to familiarise themselves with the process, the theatrical atmosphere, the emotions and terminology of auctions.

Inexperienced buyers have even bid against themselves, and given away thousands of dollars, because they were unaware of what was happening around them, Mr Bright said.

His latest book, The Insider's Guide to Saving Thousands at Auction, says buyers should set a strict price limit, based on research of comparable sales and never exceed it.

"Set your limit on an odd number, because if two people have the same limit, which is more likely to happen on a round number, then the first one to get there can buy the property," Mr Bright said.

Buyers should hold auctioneers accountable if the property is not yet declared "on the market" if bidding is well beyond the quoted price.

"Say the agent has quoted a property at 'low to mid-$600,000s' and bidding is now at $675,000," he said.

"I might ask the auctioneer if the property's on the market. If they say no, I say, 'Why not?'

Advocate Jenni Wright, of Morrell & Koren, said buyers should appear as though they are going to win.

"If the bids are not yet at the reserve, you don't want to be bidding fast, but once the property is to be sold, bid hard and fast," she said.

"Make out as though you've got lots of money, even if you haven't."

"Check out your opposition. Who was looking at the contract before the auction? Watch their body language. They may be nervous when they have reached their limit," Ms Wright said. 

"I stand next to the auctioneer so people can see I'm there to do a job and I can watch who's bidding and how they're bidding."

Ms Wright said buyers could also negotiate settlement and deposit terms other than those specified in the contract before the auction.

Jellis Craig director and auctioneer Scott Patterson said bidders should aim to retain the upper hand by holding the highest bid after quickly trumping a bid by a competitor.

If the property was passed in, the highest bidder would be given the first right of refusal to negotiate at the reserve price, he said.

He said buyers should bring a cheque to the auction to pay the deposit and note they could not make an auction contract conditional on finance or a building inspection and there was no cooling-off period after an auction.

Advocate Catherine Cashmore, of JPP Buyer Advocates, said buyers negotiating after auction could decide tactics according to whether other potential buyers had waited after auction.

She said agents fed buyers' greed by quoting low prices.

"Quote 'em low and watch 'em go," is a favourite saying of many agents.

Buyers could take advantage of current market conditions to buy well after auction if they had a property passed in to them, she said.

Advocate Frank Valentic, of Advantage Property Consulting, said buyers could gauge interest in a property by asking the agent how many Section 32 statements had been issued, how many building inspection reports had been arranged or how many offers to buy had been made.

"If your homework suggests that there will be a fair bit of competition, wait for someone to make a low first bid before making a much higher increased bid for about $10,000 to $20,000 below what you think the reserve price will be," Mr Valentic said.

"This shows that you mean business and will cut out all the bargain hunters who have been hooked in by the agent's low quote. Try to stop as many bidders as possible entering the fray."

If there are not many other buyers, slow the bidding down to try and have the property passed in to you. If the auctioneer asks for $5000 bids, offer $1000 or $2500, Mr Valentic said.

In other circumstances, a knockout bid two, three, or four times bigger than another buyer's bid might psych them out, he said.