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Understanding auction dynamics

Victoria is gearing up for a massive weekend of auctions, with the Real Estate Institute of Victoria reporting there are more than 2000 properties set to go under the hammer - a huge number given the time of year.

 

That means there's a raft of anxious bidders heading into auctions across the city, amid intensifying buyer demand and competition across the market.

 

Melbourne auctions, which take place outside the actual homes being sold and require no vetting of bidders, make for a high intense environment, where fortunes can be won and lost in a moment.

 

For many, buying property at auction is the biggest investment decision they will make in their lives.

 

Auctions are fast paced and emotionally charged events - so familiarising yourself with the dynamics at play will help keep you calm and decisive as pressure builds.

 

Your competition 

 

Firstly it’s important to realise that every auction is distinct; featuring a different property, agent, and vendor. 

 

Each auction will attract a unique set of bidders, all with differing motivations amid varying market conditions. Plans must be flexible to respond accordingly.

 

First homebuyers with limited bidding experience for example, may be tentative or overawed by the situation.

 

As a result some may be hesitant to open the bidding. In this case confidently kicking off the auction will show conviction and help assert your authority on proceedings.

 

Conversely, nerves may make other first time homebuyers impetuous, and eager to open the bidding to ensure they’re part of the action. In this case it may be prudent to let them set the early momentum, while you wait for a strategic price level to assert your interest. 

 

At the opposite end of the spectrum, more experienced buyers - looking to downsize or help their children purchase - are likely to be calmer and more decisive with their bids. 

 

Entering with strong bids early will assert your authority at the auction, while dropping in and out as bidding builds, will help you influence the tone and pace of the proceedings.

 

Positioning 

 

When you arrive at the auction, position yourself so you have a clear view of the auctioneer, and in turn they can see you and your bids.

 

It’s also important you have a good vantage point upon which to see and hear the crowd, particularly your bidding competitors. 

 

Some buyers will bid quietly and be hard to hear, so taking visual cues will enable you to stay atop of the fast moving dynamics.

 

A good vantage point also allows you to read the body language of your competition, helping to gauge whether they are bidding confidently, or straining near the upper end of their price limit.

 

The Auctioneer 

 

If possible, watch the auctioneer at other properties before attending your auction – understand how they work.

 

Each auctioneer has their own techniques and idiosyncrasies, which influence the flow and style of the bidding process. 

 

For example, some auctioneers allow buyers to break down the bidding by smaller increments, while others are more rigid with the levels they accept. Your bidding strategy should be adjusted accordingly.

 

Another important aspect is the amount of time the auctioneer gives before they lock the property down with first, second and final bidding calls.

 

Some will move through the final call rapidly, while others will string it out for what seems like an eternity as they extract every last dollar from the competing parties.

 

Whatever the pace of the auction, it’s vital you’re alert to ensure you’re in the frame and not caught talking to your partner or checking the mobile during critical moments.

 

Bidding

 

When bidding, clearly verbalise your figure – don’t just agree with the auctioneer’s price rise. This will show confidence, authority, and prevent confusion. 

 

All too often we've seen bidders or auctioneers lose their place due to unclear and muffled bidding, resulting in prospective buyers actually bidding against themselves.

 

It’s also important to mix-up your bidding where possible. This is especially the case once the property has been declared on the market and competition is narrowing. 

 

Don’t feel compelled to increase your bids by the earlier increments of 10 to 20 thousand. 

 

But conversely don’t feel bound by the smaller increments once they have been established. There’s always the opportunity to step up the intensity with a powerful bid, which is a good tactic to signal longer term staying power, and may push out bidders, who are nearing their limit. 

 

Agent tricks & techniques

 

It's the job of an auctioneer to secure the highest possible price for their vendors.

 

Many auctioneers deploy subtle techniques to encourage greater engagement and emotional investment from bidders.

 

These are designed to nudge prospective buyers towards purchasing at higher prices.

 

Vendor bids, a bid made by the auctioneer on behalf of the owner, are deployed to stimulate bidding, and add momentum if the process is stalling. 

 

This can provide an indication of the level of interest in a property. 

 

For example an early vendor bid, high in the quote range, may indicate there is limited interest in the property. As a result the auctioneer begins negotiations from a higher base to optimise price potential amid limited competition.

 

Conversely, auctioneers may start bidding below the quote if they want to encourage nervous bidders into the auction, this is particularly the case for first homebuyers.

 

Another technique deployed is having junior agents strategically positioned in the crowd. They are also part of the vendor’s campaign, so they know who has interest and at what level. They’ll work to encourage buyers to open the bidding and coax out higher bids throughout the auction.

 

This can be quite intimidating, as they can put pressure on buyers to make large bids, sometimes out of their comfort zone.   

 

It can also create a false perception of interest, particularly if there’s a flurry of early action from bidders who have been pushed into making opening bids, but don’t have the staying power once the auction progresses.

 

Remember, if you find these agents too pressurising or distracting while bidding, you’re well within your rights to politely request some space.

 

Fortune favours the brave

 

While Melbourne auctions can be daunting, they are a pivotal part of our local property sector, and provide an important process to determine fair market value - transparently and efficiently.

 

Auctions can be intimidating, but homebuyers and investors can’t afford to opt out of the process.

 

If you’re not confident enough to bid yourself, it may be worth asking a trusted friend or relative to take part on your behalf. 

 

A solid auction strategy is often the gateway to successful property investment and long term financial success, so it pays to be informed and put the best foot forward.

 

Happy bidding!


 

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