Residz Team 8 min read
“Scott, what are your best tips for bidding at auction?” If I could have a dollar for every time I’ve been asked for my best tips to win an auction during my 13 as Chief Auctioneer at McGrath Estate Agents, I’d be a whole lot wealthier!
Bidding at auction is the focus for a lot of property buyers but I urge you to think about thorough preparation as well as just the best techniques to win a house auction or to be the winning bidder at an apartment auction, for that matter. That said, here are my tips to maximise your chances for a successful outcome at a property auction.
Before you place a single bid, you need to know what an auction is and how it is conducted in your state and territory.
Auctions are where buyers publicly bid for a property, aiming to be the highest bidder at the fall of the auctioneer’s hammer. If this is you, you are legally obligated to sign the contract there and then - and there is no cooling off period.
There are different rules and regulations governing auctions in each state and territory, especially around registering your intent to bid before the auction. So, before you place a bid at auction, visit your State Government’s Fair Trading website for terms and guidelines for the auction process.
States and territories do share some rules:
The COVID-19 outbreak saw a surge in the popularity of pre-auction offers for property. In 2020, during the height of the pandemic, the ABC reported up to 83% of homes were selling prior to auction day. In 2021 the pre-auction offer was still highly popular with potential buyers fearing FOMO in a record-breaking hot market.
Pre-auction offers can still be very appealing to vendors but it’s not always the case. Properties with unique features or in desirable locations will usually go to auction, and this is the case too if there appears to be strong buyer interest. When the property market is a bit slower, with fewer buyers, a strong pre-auction offer could secure you the property.
Downsides of making a pre-auction offer include ‘showing your hand’ (ie. giving the vendor an insight into what you’re willing to pay) and becoming involved in a pre-auction bidding war.
If you make a pre-auction offer, the agent is obliged to tell the vendor. Some vendors prefer the offer in writing.
From whether owning pets is allowed to the property’s flood and fire risk, you want to be bidding at the auction with your eyes wide open. This means researching the property you’re about to bid on. Still not clear on “What does Due Diligence mean?” In essence, due diligence is reducing or eliminating risk by researching information about your prospective purchase (well before you bid, not on the day of the auction!).
It sounds boring but due diligence is critically important before buying any property, especially at auction where the fall of the hammer waives any cooling-off period for the buyer.
In my time as an auctioneer, I have seen winning bidders miss out on the home they love and have won at auction because their finances “fell through.” Make sure this doesn’t happen to you, and your finance is approved properly before you bid. Importantly, don’t exceed your limit because you do risk losing your deposit (and the opportunity to own the home you won at auction) if you can’t settle.
Feeling secure about your finances, and being disciplined about not bidding above what you can afford, will make the auction process less stressful. Clever buyers stick to their budget and don’t get swept along in the emotion. Do discuss with your significant other so you are both on the same page (and not arguing at the auction). Agree that the auction will be emotionally charged, and pre-plan how you will stay within your approved budget.
Attending other auctions within the same region where you’re hoping to buy, and watching how the auctioneers and agents conduct themselves, will help you become a more confident bidder when it’s time to attend your own auction. However, if you don’t feel up to doing the bidding yourself, get a friend or professional (real estate agent or buyer’s agent) to bid for you. If you do get someone to bid on your behalf, you’ll need to give them your written authority to do so. They’ll need your name, address, and an identifying number of your proof of identity (ie. licence number).
If the person bidding on your behalf has a power of attorney to act for you, then they can simply register to bid in their own right.
In the case of a couple registering to bid (if the state requires it), only one of them needs to register. It’s good to have support, but make sure you ask only calm, rational people. There’s no benefit to having a hysterical friend pulling at your sleeve or shouting “you can’t afford that!”
As well as being asked tips for bidding at auction, I’m often asked ‘If I’m going to register and be successful as a bidder, what do I need to bring to auction?’
Here’s what I tell them:
I like to say Saturday is “game day” for auctioneers, so make sure you’re also available to bid on that day. If not, you have to give written authority to another person to bid on your behalf. If it’s a virtual auction in a state that requires registration, the person who has been given authority to bid will need to show that to the vendor’s agent before the auction proceeds.
Auctions take about 15 minutes, however any negotiations and the paperwork with the real estate agent and the vendors afterwards may take an hour or more, so allow time for that. Be on time for the auction. If you’re late, some states don’t allow you to just rush in and bid, you will need to register and get a bidder’s number. Check your State Government’s Fair Trading website for terms and guidelines on this.
There are many ways to bid at auction, and, sorry to say, there is no secret to the process. At the 2018 The Block auction you may remember serial Block buyer’s representative Nicole Jacobs placing an opening bid of $2.5 million for Hayden and Sara’s Melbourne Apartment 3 before I even asked for bids! This was $25,000 over the reserve of $2.475 million, and she went on to buy the property for her client.
At the end of the day the person who has lined up their funds, knows their limits, and has the greatest desire to secure the property (and is emotionally connected), generally has the best chance of success.
But, you want my tips on bidding at auction…
Well, I’ve seen plenty of successful bidders in action, and most will:
When bidding at auction you may hear the auctioneer declare ‘the property is on the market’. This is to shore up enthusiasm when the reserve has been reached but, given the property’s for sale and has been for weeks, it isn’t too important for bidders. You may also hear the auctioneer make a bid on behalf of the vendor. In some states, multiple vendor bids can be made, but in all cases the vendor bid must be declared.
Vendor bidding can get the ball rolling when the auction is slow to start or has stalled at a price too low to result in a sale. It should be viewed as a positive thing by bidders as it moves the auction closer to a point where the vendor is willing to sell.
Finally, as you prepare to bid at auction, it’s worth understanding where the property cycle is at. CoreLogic data shows that despite an initial dip, housing values rose 24.6% between the end of March 2020 and February 2022. However, rising interest rates and falling buyer confidence are already cooling the market. Auction rates have dipped below 60% recently in some major capital cities, although there have been some strong results too.
First home buyers came into the market in force early in the pandemic, taking advantage of low interest rates and government incentives. New government incentives such as the Help to Buy scheme are about to be rolled out by the new Labor Government.
Rents have risen 11.8% to record highs, squeezing potential buyers saving for a house deposit. Finally, the gap between house and unit prices is widening. The median house value across Australia was at a record high 29.8% above the median Australian unit value in the first quarter of 2022.
Is it a good time to buy at auction? Only you will be able to answer this question based on your finances and personal circumstances, but whether you are ready now or getting ready for the future, good luck when you bid at auction, and remember, there will always be a next time!
Image: Scott Kennedy-Green