For many, buying a property at auction is one of the biggest investment decisions they will make in their lives. So it pays to have the confidence and expertise when heading into an arena that can be extremely tense and competitive.
We’ve previously looked at familiarising yourself with the broader dynamics at play during an auction, but in this article we’re going to drill down on the actual bidding process, and look at successful strategies to help you edge out the competition.
Preparing for the auction
It’s essential prospective bidders arrive at the auction as prepared as possible. Auctions are dynamic and unpredictable events that require an agile mindset, but this needs to be underpinned by sound preparations.
That means ensuring you’ve done the required market research, probed the agent with any important queries, had the contract reviewed by a solicitor, and carried out a building inspection if necessary.
Prospective buyers also need to ensure they have organised their deposit, are clear on the settlement period and can stipulate any special conditions they want altered or inserted into the contract.
Buyers also need to set a bidding ceiling to determine their price limit to avoid getting caught up in the emotion of the moment and overpaying. The price limit is not necessarily your ideal price, but rather how far you’re willing to stretch before bowing out of the auction.
The maximum price will obviously be guided by personal finances, but also comparable house sales and market sentiment. For more on this read our previous article on assessing property values.
Auction day
First off, buyers need to decide if they prefer to bid for the property themselves or have someone else represent them at the auction. Personally, I’d suggest having another party conduct the bidding.
I have never bidded for a property that I’ve bought for myself, and the same goes for our company founder, Richard Wakelin. That’s because emotion tends to cloud clarity and judgement in the heat of the auction.
Having said that, not everyone is cut out to bid at auctions, so if you are going to have someone represent you, make sure they have the expertise and experience needed to successfully carry out the task.
A strong level of confidence is a major factor when bidding at auctions. That’s definitely not to be confused with arrogance or intimidation, but asserting your presence and intent is important.
Positioning yourself well at an auction is part of that. I like to put myself in a position where I’m able to see the auctioneer, but also able to spot the majority of the crowd without having to turn my head significantly.
This enables bidders to watch the competition’s behaviour without having to move too much and reveal their body language.
A useful technique is to position yourself at the back of the crowd while the auctioneer begins his opening sales spiel. From there you can see where the crowd is forming and move to a strategic, well placed location before bidding opens.
Once the auction is underway ensure your bids are heard by the auctioneer and the crowd. Call out your bids decisively, don’t just nod your head or simply agree with an auctioneer’s suggested increments. This reduces the risk of losing track of the latest bidding price, as well as ensures you increase the bidding increments at your choosing, not the auctioneers.
While an overall strategy is important, it’s not one size fits all. It’s essential to recognise that every auction needs to be judged on its own merits. Each one will feature a different property, as well as differing competition, auctioneers and vendors.
Identifying an auction’s particulars, will help shape your bidding strategy.
First off, should you open the bidding? Some people prefer not to, but in some circumstances it’s absolutely necessary if no one else is willing to.
Bearing that in mind then, where should you open the bidding? Typically a good place to start is at the bottom of the advertised quote range.
This gives room to move up, but it also means that you’re far less likely to have a vendor bid put in over the top of yours, which could actually result in you bidding against yourself.
If you feel there’s strong competition at the auction, with an eventual sale price well above the advertised quote range, then it may be more strategic to place an opening bid at the middle or upper end of the range.
Meanwhile, many prefer waiting for others to put forward opening bids, so they can identify and attempt to read their major competitors. This means others are determining the early increments, and offers the chance to see if an auctioneer is prepared to cut bids early, or stick to stronger bidding levels.
It’s also worth ascertaining where an auctioneer is directing their attention within the crowd, to help gain an indication of where major competitors lie.
Some people prefer to only bid once a property has been declared on the market. This may be fine at hotly contested auctions with large numbers of buyers and fast moving bids. However, it can be a risky strategy if there’s no one else to bid, or even worse, just one other.
This could result in the home being passed in, locking you out of the right to negotiate at the vendor’s reserve and missing out on the property all together
Another important element is the ability to pause your bidding throughout the auction. It’s a wise move to deploy this tactic when you think the bidding is sitting around the vendor’s reserve price.
This may prompt the auctioneer to go inside and talk to the vendor, whereupon they usually recommend the owner declares the property on the market. If they do, then you know as a buyer, you’re now playing for keeps.
Bear in mind however, that if the auctioneer is handling a non-referral auction, they may well pass the property in. This again risks leaving you locked out of negotiating the vendor’s reserve.
Cutting down bidding increments is a good strategy to slow the auction down. However, just because you’ve cut down bidding amounts, doesn’t mean you can’t jump them back up again. This is actually a good strategy to assert authority within the auction proceedings.
Adjusting the tempo and timing of your bids can also be a solid tool to deploy, and is usually placed at a counterpoint to your competition. If a rival bidder is starting to slow down, for example deliberating with their partner, then rushing past their latest bid shows a strong sense of confidence and control.
Conversely, if a rival bidder is trying to use the tactic on you, purposefully and calmly slowing down and controlling the pace of the auction helps re-assert your authority within the proceedings.
Take home message
While a single bid may take seconds, it should be informed by hours of market research, and sit amid a broad longer term strategy.
As with all aspects of property investment, strong knowledge, preparation and decision making combine to result in strong financial rewards in the years to come.