Auctions are still the favoured way for many people to sell property. Vendors think they will get a higher price than at a straight sale, they feel that they maintain some control over the outcome and they’re exciting!
For buyers, auctions are an unknown quantity. You don’t know the reserve or the vendors expectations (other than a figure given by a real estate agent), you don’t know how many people you’re going up against and you certainly don’t know if you’re going to end the day owning a property.
From your point of view, it’s exciting, but can also be very nerve racking and frustrating.
So, before you bid, what do you need to know?
- Vendor bids
These are usually used by the auctioneer to get things moving. Sometimes they’re used to start bidding or to get bidding moving again if it stalls. They are often a good indication of the vendor’s rock bottom price.
If the vendor bid is higher than the bidders are willing to go, the property will be “passed in” (not sold). If this happens and you’re still really keen to buy the property, it will give you a good price range to start negotiations after the auction.
Somewhere between the last bid and the vendor’s bid is your negotiation starting point.
- Comparative pricing
Do some research. Check out what other properties have sold for in the area, but make sure you’re comparing apples with apples.
Look at what’s sold recently and do your maths. You can even break it down to price per square metre.
If you’re comparing properties in the same location, things to be considered are:
- number of bedrooms, bathrooms and living areas
- balcony/outdoor living
- natural light
- renovated or not
As an example, two apartments recently sold in the same block, within a few weeks of each other. Apartment A was 83 sq m, no garage, had a good sized balcony, tons of natural light, was nicely renovated and faced north. This sold for $736,000 or $8,860 per sq m.
Apartment B was 79 sq m, no balcony, no garage, very limited natural light, unrenovated and faced south. This sold for $600,000 or $7,600 per sq m.
If the property you’re interested in has the features of Apartment A, but it’s 95 sq m, you could expect to pay around $840,000. If that figure is out of your budget, start thinking about what features you could live without, try to negotiate pre-auction, or change the location you’re searching in.
These figures can give you a reasonable estimate of what you can expect to pay at auction, depending on the features of the property - and of course this is dependent on who else wants it and how bad they want it.
But it’s a good starting point and brings us to our next point…
- Auction emotion
The whole premise behind auctions is to build excitement. The point is to have people bidding against each other and when this happens emotions rise, egos get involved and sometimes your rational mind takes a break. You just want to win!
Sometimes bidding is only rising in $500 increments, so it doesn’t seem like much at all, but this can add up pretty quickly.
At the end of an auction, you will fall into one of two categories - the winning bidder or the people who drove the price up.
The point we’re making is to keep your head. Go in knowing what you’re willing to spend, leave your ego at the door and stay calm. If you can’t, arrange for someone else to do your bidding before you arrive at the auction.
It’s a stressful situation - don’t let it get the better of you!
- Have your money ready
If the auction ends and you’re the highest bidder, make sure your money is ready!
You need to sign a contract there and then, so you need to know that you can get your hands on the money in time for settlement.
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