HOW TO BID AT AN AUCTION IN SYDNEY
Wanting a property in Sydney can be an emotional experience. The demand for housing is higher than it’s ever been and that means heavy competition for desirable homes, especially at auction. For this reason, it’s important that you prepare as much as possible for Auction Day well in advance.
Having been through this myself both as a buyer and seller, I understand the emotional and financial components and have some specific advice for how to approach the process. As a buyer I know the feeling of success and more importantly, I’ve felt the pain of a loss. The loss is where you learn the most and ultimately increase your confidence, and adjust your tactics.
Below we’ll review some essential tips for how to approach and bid at an auction in Sydney with confidence.
The State of the Market
Before we start, it’s important to address the state of the market and the sheer demand for properties. Prices have increased rapidly in recent years to the point that Parliament is acting to implement new underquoting laws designed to protect buyers from being placed in a position where the expectations set only add to excessive bidding at Auction. It’s still something to keep your eyes on as many agents will under-quote the selling price by as much as 20%. This inadvertently prices you out of the market almost immediately if your maximum bid is too low.
According to a recent REINSW article, “Fundamentally, the new underquoting laws are about transparency, accountability and disclosure of accurate information,” Minister Dominello said when presenting the Bill to Parliament. “They are also about creating a fair and level playing field for everyone.”
That’s how robust the market has become and it doesn’t look to slow down anytime soon. This combined with the general mix of emotion you’re likely to feel on auction day can lead to questionable decisions.
Robert Klaric, founder of The Property Expert International, and someone we turn to for our own auctions at Etch Real Estate, had this to say about buyers and their approach at auction in a recent article on The Real Estate Conversation. “They’ve got to stick to their game plan and not get caught up in the emotion, especially at auctions,” he warns prospective buyers. “They’ve got to set a limit to what they can afford and stick to it. They’ve also got to think outside the square and look at other alternatives.” Klaric says your dream might be a two-bedroom apartment in Manly, but you might have to look at things like a shop and residence in the same area to capitalise on growth and attract immediate income.
There are a lot of pieces in motion – the more removed you can keep yourself, the more effectively you’ll be able to bid at auction.
How to Prepare for Auction
There are a number of things to do before auction day. Here are four in particular you should address in advance to be sure you are ready for a potential purchase:
- Review the Contract for Sale – Understand your legal obligations if you win the auction and what your next steps will be. If amendments are needed to the agreement, they should be made in advance of the auction between both parties. There may even be different terms in effect for each bidder at an auction.
- Ensure Financing – Set a maximum purchase price in advance of the auction and ensure your financing is in order up to that maximum purchase price. At the same time, make sure your maximum purchase price is in line with the current market value of the properties on which you are bidding. Buying significantly above market value may cause withdrawal of your financing from the lender, leaving you responsible for a purchase you cannot afford.
- Bring Your Personal Cheque Book – Payment of the deposit is expected at the time of the auction so have a means of paying on your person that day. Bank cheques are inconvenient and many auctions occur on the weekend when your bank may be closed. Even if you don’t currently have a personal cheque book, order one for the purposes of these auctions.
- Determine Your Maximum Price – Do this the day before the auction. Don’t let emotion get the better of you and drive your bids higher than you can reasonably afford. A good maximum price is one that you would feel comfortable walking away from if it went higher, even if you only lost the auction by $1,000.
If you are fully prepared for the auction in advance, the tension and stress you might feel at a first time auction will be decreased.
How to Bid at an Auction in Sydney
With preparations out of the way, you want to be ready for the actual bidding process. For most first time homebuyers in Sydney, this is their first auction experience and it’s not like what you see in the movies. Here are some tips to help prepare for the bidding process and perform well on a property in which you are interested.
- Go to a Number of Auctions Before Auction Day – Don’t let the first auction you attend be for a property you want to purchase. Spend time acclimating yourself to the process and observing what other prospective buyers do in these situations. An ideal number to observe is between 10-20 in your area – now I know that can sou d excessive but you’ve got to remind yourself of the consequences of overspending, or missing out on your dream home. This ensures you see each type of auctioneer and know what to expect in terms of timing of your bids.
- Knowing When to Bid – Don’t be hesitant to bid as it will give others confidence to take control over the pricing. At the same time, don’t go too hot too quickly. A good rule of thumb is to bid actively and confidently so others feel that you have a no limit. As Martin Farrah, an auctioneer recently interviewed by SMH said, “get the fan up quickly following someone else’s bid”. George Savva, an auctioneer in Sydney’s suburbs, adds “when the bidding gets down to increments of $1000, don’t bother making your own $1000 bid”. Go big and increase the bid by as much as you feel comfortable toward your limit. While you may be prepared to stop at your limit, others are more likely to get emotional and push past their limits if the increments are too small. It sounds counterintuitive but it’s a good technique for taking control of the auction process.
- Use Momentum to Your Advantage – There’s a certain amount of psychology to how you present your bids and interact with fellow bidders. Too much momentum will drive you or another inexperienced bidder beyond the walkaway point, but you can also use tricks to stop that momentum. For example, when you approach your limit, spell out your bid in detail – instead of saying eight hundred, say eight hundred thousand dollars. Make it clear what the volume of money being spent is – bring it back down to earth where other bidders may take a reality check and realize they’ve gone over their limit.
- When to Let the Owner Pass the Property In – A low bid can be exciting, but if it’s too low and your potentially winning bid doesn’t meet the owner’s reserve, you may be asked to increase your bid and reopen bidding with others at the auction. In such situations, it may be better to allow the owner to pass the property in and negotiate behind closed doors outside the auction. This is a situation in which a buyer’s agent will be a big benefit to you as well, helping to navigate this process.
The more prepared and better set you are mentally for the auction, the stronger your performance will be when the time comes to bid on a property you really want.
Working with a Buyer’s Agent to Improve Your Odds at Auction
As you can imagine, bidding for yourself can be hard. Not only is there the emotional component – this is a property you really want and are more likely to go over your limit – but there is the competition; a mix of professionals and beginners all making those same mistakes.
A buyer’s agent working as a proxy for you in an auction and can help immensely. When working with a buyer’s agent, you can be certain that the price won’t go over your “walk away” price, nor will the bidding be an emotional experience. Additionally, a professional buyer’s agent has been to many auctions and will have the experience needed to read the room, understand the auctioneer, pick out professionals in the crowd and know when to bid and when to hold.
While there is extra cost involved in working with a buyer’s agent and the detachment of not being at the auction can be stressful, for those just getting into the auction market, it may be the best option to avoid the issues listed above.
I was recently contacted by several friends act as a buyer’s agent and we successfully secured a property pre-auction. This not only saved them a lot of potential stress at auction day, more importantly it secured their home in a rather hot market where the winning bidder in an Auction can often remain very unknown until the last hammer call.
Taking the Next Step to a Sydney Auction
If you are ready to take the next step and start attending property auctions in Sydney, make sure to take your time, do your research, gather your paperwork and set your maximum bids in advance. It can take longer than you might like, but those extra steps can eliminate much of the stress and surprise that comes from a first time auction that doesn’t go your way. The better prepared you are, the more likely you will be to perform strongly and win the property you have your eye on.