Westpac’s latest Home Ownership report found that more than 50 per cent of homebuyers fear buying at auction. Apparently, the biggest fear buyers have is overpaying. The survey also revealed the second biggest response was a general fear of knowing how and when to bid in public.
The next major fear is a buyer’s underlying anxiety that they will miss out and be back searching the web next week. Property search is long and arduous and many buyers want to get it over with. But that may come at a high cost.
Tips for buying at auction:
- Do your homework
Don’t turn up on the day and register unless you have done all the due diligence including seeking independent building, pest and electrical reports.
- Stick to the budget
Don’t rely on auto valuation applications or agent guides. Do your own research or better yet, pay for a buyer’s agent or a registered valuer to value the property in advance.
- Consider the alternatives
If the budget is tight, maybe buying at auction isn’t the best plan. Paying for reports and legal advice each time you go to auction can be costly and quickly drains the bank balance. Have a buffer you’re prepared to lose so you don’t end up with no deposit. Consider a private treaty sale.
You also need to understand the basic principles on how an auction works. A property auction is a public sale by a licensed auctioneer where the property is sold to the highest bidder, providing the reserve price is met.
An auction takes place under unique fair trade and legal conditions when compared to a private treaty sale. These conditions vary across Australia and it is advisable to check the rules that apply in your state or territory by contacting your local Office of Fair Trading.
Check the Contract
It is strongly recommended that you have your solicitor or conveyancer check the contract of sale prior to auction to ensure that you understand all the terms and conditions that you will need to abide by if you are the successful bidder.
When you arrive at an auction, the conditions of sale and the contract of sale are available for you to read. The auctioneer will also usually read out the auction conditions before the bidding gets underway. A few examples of these are:
- The highest bidder is the purchaser, subject to the vendor’s reserve price.
- Whether the vendor is entitled to make any bids – if so, how many and under what conditions.
- The auctioneer can refuse any bid that they feel is not in the best interest of the vendor.
- The auctioneer has no authority to accept a bid after the fall of the hammer.
- Before the auction starts, you’re entitled to ask the auctioneer any reasonable questions about the property.
The reserve price is the vendor’s insurance policy that the auctioneer won’t sell their property for less than they want during the auction. In short, it’s the minimum price that the vendor will sell their property for. Once the bidding starts, the property isn’t really for sale until the reserve has been met.
If the bidding doesn’t reach reserve then the auction has failed and the property is passed in. At this point, the vendor usually starts negotiating with the highest bidder as a courtesy – it doesn’t mean that other bidders can’t negotiate as well.
If the bidding reaches the reserve, then the property is truly on the market for sale and the highest bidder will buy the property. Remember, there’s no cooling off period or chance to change your mind, which is why you must understand the conditions of sale well before this point. When the hammer falls to the highest bidder – the property is sold!
Understanding the Psychology of Buying at Auction
Observing and understanding the often subconscious, psychological factors that influence bidding is an advantage. The psychology of auctions is absolutely fascinating and it’s something that all bidders should be aware of before auction day. Why? Because auctions are highly emotional environments where a bidder’s focus, reason and common sense can easily be lost momentarily costing them thousands.
Just think about it. You have a group of people all wanting the same thing and in order to get it, they need to outbid and/or outsmart each other. Auctions are very much about competition and being a winner whilst trying to spend as little as possible. Two things that are in conflict with each other.
Money Money Money
You also have the big pressure cooker – `money’. Money brings up a lot of emotion for most of us. Even talking about money makes most people uncomfortable. For instance, it’s considered rude to ask people how much money they earn, or how much they’re worth – even if they’re close friends. If you’re going to declare how much you’re worth in public, you’d prefer to be worth more than everyone else. No one wants to be shown up as a loser and poor as well.
In addition, most of the bidders will already have put some money into the deal. They’ve paid for the pest and building inspections, paid for a solicitor to review the contract and have their deposit ready to go. So they also have something at stake and the last thing they want to do is to see any of their money go down the drain.
Many of the bidder’s will also have developed an emotional attachment to the property even though it doesn’t yet belong to them. For example, they’ll imagine how to arrange their furniture, when to organise the new tiles for the bathroom and how happy the children will be in their new backyard. In their mind it’s just a matter of time before the front door keys are handed to them.
For all of these reasons it can be highly advisable to engage an industry professional to either help or bid for you. If you decide to go it alone, follow the above advice, as well as attend a number of auctions and get the feel for it.
Good luck and bid carefully.
Byron Property Search charges $750 plus GST for auction bidding and a property report.
Some of this material curtesy of EPS Buyers Agency and Patrick Bright’s Insider’s Guide to Saving Thousand at Auctions.