Most people are oblivious to the dynamics of a property auction. Which is why, we at Evalesco, turned to Ramon Cura from Cura Property for some expert advice that would help our clients win at auctions. Ramon is a buyer’s agent with a lot of experience in the property market and he has some useful tips to share. So, if you’re looking to be successful at a property auction, here’s your checklist of dos and don’ts.
If you can’t take emotion out of the auction process, learn how to manage it
Buying a property or a home in particular, is a very emotional process and an auction is usually the culmination of that process. Imagine going into a house with four other people who want to buy that property just as badly as you do, making emotion a key factor in the bidding process. And the auctioneer will do his or her best to use as much of that emotion as possible to get the best price.
Emotion clouds logical judgement and is one of the primary reasons why people are unsuccessful at auctions. As a result, if you think the auction is getting the better of you, your emotions will play out, creating a lot of stress, and eventually, the end result will be negative.
You have to accept the fact that you are going to bring emotion into the auction. So, if by default you are going to take your emotions along, you have to make sure that there are processes and plans in place to manage the emotion. This will put you in a really great position to handle the auction, whether you are successful or not.
Research makes you better informed and more confident, keeping emotions at bay
Researching the property and the area is a good place to start. Usually, when a property is advertised in Sydney, the selling agent provides a price guide. The trap a lot of buyers fall into, is to assume that the price guide is indicative of what the agent thinks the property will sell at. It’s important to understand that a price guide is there only to give people an idea about the minimum price they think a property might sell at.
The next step should be to invest time and money into researching what’s going on in that market. Purchase and download local property reports, ask the real estate agent lots of questions, talk to the neighbours to understand what they like in the area or engage a professional to help you. Do all of the above and arm yourself with relevant information that will give you a certain level of confidence you need to be successful.
Understand the property sale trend in that area and whether it’s worth a premium price
Your research should include watching what’s sold in and around the area, and the projected trend. It can be a trap to just assume that because a property two streets away sold for a certain price, then this property would sell at the same price.
We all know the market has been moving up in Sydney. So when we look at what’s sold in the past, we can gauge whether we should be applying a premium to the price guide. For instance, if the price guide for a particular property is $2M, and the property down the road sold for $1.9M a year ago, it would be safe to assume that if the market has moved quite strongly in the last 12 months, then $2M is not going to be enough to secure the property. Especially if you’re in a room with three others who want to buy the property as much as you do.
Decide on the premium you’re willing to pay for a property
If the current market trend dictates that property prices are on the rise, you should be prepared to pay a premium for a property that you really want. How much premium you’re prepared to pay really comes down to how much that property meets your criteria.
If there’s a property that you rate a 9/10 or 10/10, you’re definitely going to want to pay a premium for that property, than for a property you rate a 5 or 6/10. So, a really good way to understand what that property will sell for is to really understand the market trend, apply a premium to the recent sales figures, then figure out how that property fits your criteria and how much you’re willing to pay for that.
Based on your research, make a plan in preparation for the auction
Your research for a particular property may tell you that the property may sell for more than what you can afford. If that’s the case, your best option would be to accept that and move on to other more affordable options.
If you turn to a professional, they can be very candid in their advice if they feel the property is going to sell above your budget. If you turn up for an auction, knowing full well that your chances of being unsuccessful are very high, you run the risk of letting your emotions play on you. If you do find a property that’s going to sell well within your budget, having a plan for the auction is definitely the key to being successful.
Key elements of the auction plan
The basis of your plan is to decide at what price you’re going to start bidding, what your maximum bid is going to be, who is going to do the bidding and gain a keener understanding of how auctions work. Part of that plan should be to get a feel of live auctions – turn up at auctions at least three times. You will be attending those auctions as a neutral observer; this will help you understand the kind of emotion that goes on and will help you get a glimpse of what to expect when you go to your own auction.
The plan should also include figuring out three levels of price – the price that you feel is a fair price, the price you feel is a premium price but you’d still pay for it and the absolute maximum price where you wouldn’t pay a single dollar more for that particular property. When you prepare these three price levels, it removes emotion and brings logic back into the process.
If the auction gets to a point where the bidding is above your absolute maximum, you will definitely walk away less upset by the fact that you did not win the auction. If you don’t have your price levels in place, it will leave you at the mercy of your own emotions.
Figure out who the ideal person is to do the bidding
You should avoid bidding at the auction yourself because the chances of emotions getting in the way are very high. The bidder needs to be a person who is neutral, one who has no emotions invested in the property being auctioned. The message you want to send to the other bidders in the room is, ‘we know what we’re doing’!
By removing emotion, we’re removing the ability from other buyers to read what we’re actually thinking. To find the least emotional person, you have to look at someone who is removed from the buying process. It can be someone who you know well and trust, a family member who is not actually involved in the buying, a very close friend or an advisor that you trust. You could choose to engage a professional buyer’s agent who has a lot of experience with auctions.
A few good strategies to implement during the auction process
One of the best strategies is not to bid first. If you do your research correctly, you will have a pretty good idea where the property will sell at, so the best plan of action is to let others start the bidding. There may be silence for the first minute or two and that could possibly create more tension.
But having that plan, and waiting for someone else to do the bidding first, gives you a clearer picture of who’s actually interested. So, let them do the bidding, keep an eye on their emotions, and at the same time, keep a check on your plan. Wait as long as possible before you put your first bid in. If the bidding has gone well above your maximum price, it is alright to walk away without making a single bid.
If you wait long enough to put your first bid in, chances are bidders would have knocked each other out and you’re one of the last bidders in. That’s always going to give you more confidence and even if you don’t get the property, you’ve had the opportunity to watch what’s going on and that always gives you more confidence the next time.
More information on professional advice, property market trends and auctions
You can check out Ramon’s website www.curaproperty.com.au for more information or you could give him a call to discuss how he can help you with your auction.