A slice of the auction

0 CommentsSaturday • October 8, 2011 • by Henry Wilkinson

With demand remaining low, and your research done, now’s the time to do your bidding.

‘I’m cleaning up at the moment,” buyer’s agent Amanda Segers says.

”There’s some good properties out there and nobody is making decisions, so I’ve got no competition.”

Segers is buying about two houses a week for her clients and is finding the best deals in the $750,000 to $3 million range. One of these was a three-bedroom townhouse in Wollstonecraft that she bought for $895,000, down from $950,000.

Despite there being some strong sales across Sydney this spring – with some going hundreds and thousands over reserve – the market generally is full of opportunity for buyers. Auction clearance rates have nudged 60 per cent recently. But an auctioneer and the director at Cooley Auctions, Damien Cooley, says the market is not as strong as he had expected and there are ”some exceptional buying opportunities compared with previous years”.

So if buyers are going to capitalise on this opportunity, they need to understand the auction process.

Pre-auction

Rather swallow razor blades than bid at an auction? Then buying beforehand will seem like a great idea. With agents often struggling to find enough buyers for an auction, many will jump at the chance to secure the sale beforehand.

But Rich Harvey from propertybuyer.com.au warns you must do your research on comparable sales in the area to ensure you aren’t paying too much.

”We find in many cases the vendors will want a premium price prior to going to auction,” he says.

Another risk of making a pre-auction offer is that it allows the vendor’s agent to use it as leverage with other interested buyers – whose counter offers you are not privy to – and, ultimately, to drive up the price, says a buying consultant with Rose and Jones, Stuart Jones.

You could find yourself, in effect, in a silent auction, he says – one that isn’t transparent like a real auction.

”A fictitious other buyer may appear to try to make you bid up and you don’t want to be bidding against yourself,” Harvey says.

You could ask the agent to show you the offer in writing. If that doesn’t work, the best thing to do, he says, is to make your best offer and tell the agent you will not be making others. If someone else has deeper pockets, so be it. Or it could proceed to auction. If you’re still interested but don’t want to bid, you could ask a friend or a buyer’s agent to do it on your behalf.

Don’t forget, in the current uncertain market, you could get it for less than you expected.

The auction

There are many strategies when it comes to bidding at auction but one thing all experts agree on is that buyers need a spending limit and need to be firm about sticking to it.

A buyer’s agent from Homesearch Solutions, Henry Wilkinson, says he is always amazed at how many bidders don’t have this limit nutted out before the action starts and instead are guided by others.

This indecision is a recipe for ”buyers’ remorse”, Jones says, which can happen if buyers just miss out or pay slightly more than they can afford. His suggestion: walk away when you’ve reached your limit.

As well as having a maximum price, you should always bid confidently and strongly, buyer’s agents say.

Segers also cautions against talking between yourselves while the auction is under way as it gives an air of uncertainty and could tip off other buyers, the auctioneer and agents that you’re close to your limit. ”Make it look like you’ve come in with plenty of money and you’re there to buy the property,” she says.

Cooley says auctioneers read the body language and confidence of bidders to gauge who are the most likely to buy the property.

Another big no-no, Jones says, is bidding against yourself, which can happen if a vendor’s bid is placed after yours and you are asked to bid again. Auctioneers also encourage this by telling bidders to raise their last bid so they have a better chance of buying. In this instance, Harvey says, bidders should resist offering more until the property has passed in or there are other bidders.

However, Cooley says raising an offer is sometimes necessary at an auction if a bidder is going to buy the property.

When deciding how to bid at auction, buyer’s agents say there is no hard-and-fast rule. One strategy is opening the bidding low – but not ”offensively low”, Cooley says – and then offering small bids rapidly after the previous bidder.

Another is to wait until the bidding has slowed to small increments and then come in with a strong bid over the top.

Whatever the method, Wilkinson says it’s important to try to push the bidding increments down. For example, if the bids are going up in lots of $25,000, ”you may have paid $24,000 too much”.

However, Harvey says, a big bid at the end can often knock out the competition: ”It depends on how much you want the property.”

Passed in

If the bidding has stalled before reaching the reserve, after asking the agent to consult with the vendor an auctioneer will pass in the property. The highest bidder is usually then given first opportunity to negotiate a price. But Segers says this is not a ”right” or a law, just ”agent talk”. Anyone can make an offer. ”They’re not going to say, ‘Go away, we don’t want your money,”’ she says.

But McGrath agent Ben Collier says giving the highest bidder the first chance to negotiate is ”a protocol that most agents adhere to”.

Segers’ strategy if a house has passed in is to decide on an amount with her buyers, then write the offer on a contract, get the buyers to sign it and hand the contract to the agent: ”If they choose to exchange, that’s up to them.” Once the auction has finished, the advantage goes to the buyer ”big time”, she says, as most buyers walk away at that point.

However, Collier says, buyers don’t always walk away. At an auction he held recently, none of the eight parties made a bid before it was passed in. Afterwards, six of the eight groups wanted to make an offer, turning the negotiations into a silent auction. Each group was told the reserve price and asked to give their best offer.

”That was frustrating for the other buyers once it got to that stage because they couldn’t see if they were going to miss out by $2000 or $20,000,” Collier says. ”Then they felt they should have put their hand up at the auction.”

The property ended up selling for $50,000 more than reserve.

Good advice

• Do your homework: find out how much the house is worth.

• Always have a spending limit and stick to it.

• Never bid against yourself.

• Always bid confidently and strongly.

• Don’t talk to the auctioneer or agents during the auction.

• Never talk, or look, at your spouse or partner during the auction.

• Have a plan of how you are going to bid.

• Try to bid in small increments.

• Consider a knockout bid.

‘You have to be ready to walk away’

With a decade of buying and selling under her belt, the principal of Good Deeds Property Buyers, Veronica Morgan, is no stranger to the auction process.

In her other guise, as a presenter of Relocation Relocation Australia, a new show on Foxtel’s LifeStyle channel, she has more eyes on her than at a typical Saturday auction.

For example, in the show’s first episode, which screened on September 28, she bid on a house in the inner-Brisbane suburb of Paddington – for a Sydney couple, Rae and Karl – and managed to win the property right on her clients’ limit of $540,000. Watching her, however, you would think she had thousands more to spend.

Morgan started confidently against another bidder, quickly jumping in after every opposing bid, upping the price by $5000. At one point she stopped to see whether the house would be put on the market. When it was, she came back quickly with a knockout bid.

”What the other buyer didn’t know was that that was all I had in the tank,” she says. ”One of the things we often do is make it look like we’ve got bottomless pockets. My goal is to psych out the other parties … [show] I mean business, I’m going to keep bidding.”

Morgan says her strategy depends on a host of factors, such as who is bidding and how many bidders there are. She always has an upper limit above which she does not bid. This is decided after ”very rigorous price research” and discussions with her buyers.

”And if someone’s prepared to pay more than you, you have to be very comfortable to walk away.”

Source : Antony Lawes, Sydney Morning Herald (Domain), 8 October 2011