With auctions becoming increasingly popular, know how to get in the game and win

With Australians now moving freely, at least within their own cities, and the property market continuing to feast on low interest rates, the auction market nationally has been on fire.

Arjun Paliwal, founder and Head of Research of buyers’ agency InvestorKit
Arjun Paliwal, founder and Head of Research of buyers’ agency InvestorKit

With Australians now moving freely, at least within their own cities, and the property market continuing to feast on low interest rates, the auction market nationally has been on fire.

But handling the heat of an auction when making one of the biggest purchases of a lifetime is a skill, like any other, that requires knowledge, patience and research.

While the housing market boom has eased back a notch so far this month as buyers absorb a rush of pre-Christmas listings, last weekend was still the second busiest week to date for auctions, according to CoreLogic figures.

Arjun Paliwal, founder and Head of Research of buyers’ agency InvestorKit, said Aussies need to get used to the idea of purchasing under the hammer if they’re looking to buy in this simmering market.

“While buyers in Melbourne and Sydney tend to be familiar with auctions, the market temperature in recent times has added more pressure, so they need to come armed with the latest market research and a strong strategy to understand comparable sales.”

Auctions as a sales medium is now gaining more traction outside the two biggest cities.

“Brisbane, Adelaide and regional areas, which in the past haven’t been traditional auction markets, will see greater quantities of properties selling under the hammer due to improved vendor confidence,”

Many won’t be used to this style of buying and those looking to buy will need to be open to the idea of auction if they intend to buy in the next quarter, particularly for properties selling for $750,000 and above.” he said.

Eight tips to increase your chances of winning at auction:

  1. Shortlist several properties
    By nature, auctions are fast-paced and can be emotionally driven. To minimise getting swept up in the action and paying more than initially planned, have a shortlist of several properties to fall back on so you have momentum, rather than just one.

    Not having all your eggs in one basket will mean you’re less likely to make a regretful over-purchase.

    You’re also less likely to start house hunting again from scratch.

  2. Monitor the most recent property sales right up until the day of auction
    Looking at comparable sales (the recent selling prices of similar properties in the area) will provide a strong indication of the market value of a property. Many buyers are still taking the traditional approach of using the last three-to-six months of sales.

    In this hot market, using this approach will give you an inaccurate price guide that will be three to 10 per cent behind the accurate market price. To ensure you have a realistic price guide on the day, continue researching right up until the auction. This might include calling agents to get a guide on a recent sale or one under offer.

  3. Compare apples with apples
    In doing your due diligence to understand market value, look into the specific details and features of a similar home. Ask yourself, are you comparing a property that might be flood or bushfire prone to another property in a suburb that might not be similarly affected? If the property you’re looking to buy has a pool or bus stop in front of it, ensure you compare properties with similar features as part of your research.

  4. Set a cut-off range, rather than cut-off price
    As part of your prep work and strategy ahead of auction day, determine a cut-off price range you’re willing to pay, rather than a specific maximum price. Think about the top price in your range as a reality check.

    If you pay anything above this, you will think it is overvalued and a purchase you will regret. By doing so, you have some wiggle room for how much you’re willing to pay.

  5. Attend open homes and auctions
    To better understand how many bidders you might be up against at an auction, visit open homes for private properties and attend auctions in the neighbourhood to get an idea of how much interest there is in the area. You’ll be better prepared and less surprised at the auction you plan to bid at.

  6. Follow trend reports
    CoreLogic and SQM Research provide an overview and analysis of the property market, along with recent trends on performance in various areas, suburbs and sometimes even streets. When doing your research, the key thing to look at is the guide on what a property might sell for based on this research, compared with what it ends up selling for on the day. The percentage difference can provide you with a better price guide and ensure you aren’t blindsided on auction day.

  7. Consider placing a strong opening bid
    Making yourself known with a strong opening bid can dishearten your competition and wipe them out early on. This will help reduce auction heat and bids rising too quickly.

    Too many bidders at the start can bring out people’s competitive spirits and see high bids placed too quickly.

    If you’re thinking of a starting bid and you're willing to go up to say $1.5 million on a property and believe this could be the end price, consider making an opening bid of $1.25 million or more to scare off competition. You’ll likely wipe out two-thirds of bidders who didn’t do their homework.

  8. Slow down an auction at the end
    It’s possible to slow down and reduce auction heat so bids don’t reach a price too quickly, particularly when you’re $200,000 to $500,000 out from your end price.

    When the bidding starts to get closer to your cut-off range, consider bidding in one-, five- or ten-thousand dollar increments or use odd numbers. This can force the auctioneer and bidders to slow down and rethink the bid due to unexpected numbers.

    A pause can remove the heat and intensity and mean the price won’t rise as quickly.

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