Real-estate auctions are often a rite of passage to owning your first home, but they can be stressful without careful preparation and strategy. We have some tips on how to prepare for your first auction and bid wisely, so that you don’t overpay or miss out on your dream home due to a lack of homework.
Buying a home can be stressful. Add an auction into the mix and the process can seem quite daunting. But it doesn’t have to be. With a bit of careful preparation, forethought, and strategy, you can guard against paying too much and maximise your chances of success. For those of you who are new to the home buying business, here are 10 tips to put you on the way to acing your first auction.
1. Do your homework
Research is key when preparing for a real-estate auction. Look at the sold listings online to understand the prices at which similar properties have sold. Take a walk around the neighbourhood and speak to neighbours about the area. Attend open houses for properties nearby. All these activities will help you understand the home’s location and market value so you can determine a suitable bidding range.
2. Obtain a professional building report
Do a thorough onsite inspection of the property and obtain a professional building report so that you fully understand the condition of the property and know what you are bidding on. If the building report isn’t favourable, you’ll have the opportunity to walk away before the bidding begins or, alternatively, use the information to set a lower bidding limit.
3. Set a budget
Establish a clear budget before stepping into the auction. Consider not only the bidding price but also additional expenses such as stamp duty, conveyancing costs, and renovations. Set a maximum bid that aligns with your financial capabilities and stick to it, no matter the excitement of the moment.
4. Apply for financing pre-approval and pull your deposit together
Approach your lender to get pre-approved for a loan so that you have confidence you will have access to the finance to pay for your new home if you are the successful bidder. Pre-approval for a home loan is a type of preliminary approval from a lender. It shows you what the lender will let you borrow based on the information you’ve provided them about your income and expenses. Before the auction, make sure you have enough cash to transfer the deposit if you are the successful bidder.
5. Understand the auction process
Auctions are subject to strict rules and are typically carried out by a real-estate agent, who acts as the auctioneer. During the auction, hopeful buyers will compete to make the highest bid for the property. Before the auction, the seller will nominate a reserve price, which isn’t usually made public. If the reserve price is reached and bidding continues, the home will be sold at the end of the auction. If none of the bidders reaches the reserve price, the auctioneer may ‘pass in’ the property, meaning that it is not sold. Auctions can be fast paced. It’s important to keep track of the competing bids and stick to your budget. There is no cooling off period or time to change your mind about the sale if you are the successful bidder.
6. Familiarise yourself with the auction rules
Some auctions have specific rules and procedures, such as requirements for registration, bidding increments, and payment methods. Obtain a copy of the auction terms and conditions beforehand and make sure you are prepared to follow these rules.
7. Thoroughly examine the sale contract
Prior to the auction, obtain a copy of the sale contract and show it to your solicitor or conveyancer for review. They can explain to you any potential risks that come with buying the property, and ways to protect yourself against those risks.
8. Attend other auctions as an observer
Consider attending a few auctions as an observer before you go as a bidder. This may help you understand the dynamics and pacing of the auction process.
9. Bid strategically
Tailor your bidding strategy to maximise your chances of success. Consider employing tactics such as bidding early to establish dominance, bidding incrementally to gauge your competition, and waiting until the last moment to swoop in with a decisive bid. Adapt your strategy based on the behaviour of other bidders and the dynamics of the auction.
10. Enjoy the experience
While it’s important to be prepared, level-headed and strategic at an auction, there are no rules to say you shouldn’t enjoy the exhilaration of the auction experience. Whether you win or lose, each auction provides valuable lessons. Celebrate your successes and learn from your mistakes, knowing that every bid brings you one step closer to owning your own home or investment property.
General advice only.
Source: Customer Owned Banking Association (COBA)
