Real estate auctions create emotional situations with the aim of encouraging you to place higher bids for a property than you would normally. The key to finding a bargain is the ability to overcome emotions so you don’t get caught up in the excitement.
Investors go to auctions in the hope of finding bargains, but you’ll face a lot of challenges along the way. Sellers often have the advantage, especially if their properties offer something unique and a good auctioneer has the room.
So how can you come out on top at a real estate auction? We’ve compiled seven tips to help you.
Tip #1 – Look the Part
How you present yourself to other bidders can offer you an early advantage. If people believe you are a professional investor, they may be less willing to bid against you on a property. The intimidation factor you create when you look the part can play on the nerves of auction novices.
Dress for business, and bring along a notepad. The act of writing notes near other bidders suggests that you know something they don’t. Dressing professionally will also improve your confidence, which helps you to make the right decisions when it’s time to start placing bids.
Tip #2 – Make an Impression
Looking the part creates an intimidation factor, but you need to back it up by ensuring everybody notices you. No, you shouldn’t shout your intentions from the rooftop. However, the way you carry yourself throughout the auction ensures other bidders and the sellers know you’re there.
For example, you could try arriving at the auction in a luxury car. This creates the impression that you have money to burn, which makes those who notice your arrival less likely to bid against you. You don’t even have to own the car. You could rent it for the day just to create that all-important impression.
Take in the room when you arrive, so you can choose the best location. If there are very few chairs available, arrive early and try to take a seated position at the front. This shows others that you’re serious about the auction. However, you may consider standing if there is a lot of seating available. This will make you stand out from the rest of the crowd.
Speak confidently whenever you bid, and name the entire amount. Saying “$500,000” creates more of an impression than saying “500”.
Tip #3 – Play Your Cards Close to Your Chest
The more a seller knows about how much you can bid, the larger the advantage they hold over you. Play your cards close to your chest and give no solid indication of the amount you’re willing to pay. This requires some balancing on your part. You need to give the impression that you have lots of money to spend while creating an air of professionalism that shows that you also know how much the property is worth.
Letting a seller’s real estate agent know how much you’re willing to bid, offers them the opportunity to play the room. A good auctioneer can play other bidders against you to bring you as close to your limit as possible. Remember that auctioneers receive higher commissions when they drive bids up, as do the seller’s agents.
This doesn’t mean there is no merit in speaking to the real estate agent before the auction. You can use this opportunity to find out more about the property. For example, you can get an idea of how much interest the property has generated if you ask how many people have requested building reports. You can usually halve the number the agent gives you to get an idea of the competition you’ll face.
Tip #4 – Lower the Reserve Price
You head into slightly dangerous territory when you try to lower the reserve price. However, you may end up with a bargain if you succeed.
The best way to do this is to ask the auctioneer if the reserve has been met. Do this throughout the auction, making it clear that you won’t place a bid until the property is at a saleable point. Low interest may prompt the seller to lower the reserve. However, this can also backfire if that lowered reserve encourages other bidders.
You also need to be careful if you’re the leading bidder for a property for which the reserve hasn’t been met. The auctioneer may ask you to raise your bid to meet the reserve, instead of ending the auction. Doing so may help you to win the property, or it may encourage other bidders who now know how the reserve compares to their own budget. Sometimes, it’s better to allow the seller to pass the property in, which prevents them from holding negotiations with other potential buyers. You’ll have the sole negotiating rights if you were the leading bidder when the property was passed in.
Tip #5 – Know When to Bid
Knowing when to bid is almost as important as the dollar figure attached to the bid. Many people wait until the auction nears its end, upon which time they’ll enter their bids. This can have a damaging effect on the other bidder who thought they would win, but it can backfire. If you aren’t quick enough with your bid, the auctioneer may bang the gavel to confirm the sale before you have had a chance to make your presence felt.
Others find success in bidding early. They come in with a large bid from the start, which can take out much of the competition early. However, there is some risk attached to this strategy too. If you start things off with a low offer, you may offend the seller. This may not seem like a big deal, unless you find yourself in negotiations should the auction not meet the reserve price. An insulted seller may not be as willing to negotiate as somebody who thinks you’ve taken the auction seriously.
As a result, you need to work out which tactic works best for you. It may be best to bid early until you have had the chance to watch the auctioneer in auction. This will show you how quick they are to bang the gavel on a sale, which could help you to time late bids at a future auction.
Tip #6 – Check the Clearance Rate
Knowing your auction house’s clearance rate lets you work out if it’s a buyer’s market before you head to a real estate auction. Offered as a percentage, the clearance rate tells you how many properties an auction house has sold during the previous week or month.
Ideally, you should look for a clearance rate below 60%. This indicates low interest from buyers, which leads to lower house prices. You’re more likely to get a bargain if you attend an auction house with a low clearance rate.
As the clearance rate rises, so too do the prices of the properties at auction. This also shows that demand is high, which makes it easier to end up in a bidding war.
It’s not impossible to buy for a low price when an auction house has a high clearance rate. However, the figure can offer a useful indication of how much competition you’ll face.
Tip #7 – Consider Hiring a Buyer’s Agent
Reading these tips is one thing, but putting them into action is another. Even with this information, you may not feel confident in succeeding at auction. Furthermore, you may be susceptible to making emotional bids if you develop an attachment to one of the properties at the auction.
This is where using a buyer’s agent could help you. Buyer’s agents remove all the emotion out of the auction process, plus they have experience that may prove crucial. All you need to do is tell your agent how much you’re willing to spend, and they’ll do the rest for you. There’ll be no temptation to exceed your budget, as the bidding will be out of your hands.
Buyer’s agents come with fees. Some charge flat rates, whereas others may take a commission, which is usually a percentage of the property’s sale value. Weigh up your options and consider if the fees justify the experience a buyer’s agent provides.
What to Do Next
These tips should place you in a position to succeed at auction. Further to this, you should always enter the auction house with pre-approval on your home loan. This ensures you don’t end up unable to pay for a property you’ve won.
You should also do the following before heading to auction:
- Read more tips about buying properties at auction.
- Find out how much you can borrow before you go to an auction.
- Speak to one of our mortgage brokers for advice about your home loan.
This information is general in nature, and you should always seek professional advice when making financial decisions.