Continuing my special live series on how you can have success buying property at auctions, I draw on the best insights I’ve learned from Australia’s top property experts.
Transcript:
Welcome!
In the current seller’s market, with limited properties for sale being hotly pursued by a large number of hungry, cashed up buyers, high majority of properties are being sold at auction in order to achieve the highest price.
Now, in order to equip you with the knowledge and the skills to improve your chances of buying a property under auction conditions, this week we continue our special auction series that brings together and draws on a collection of advice from a wide range of industry leaders that include buyers, specialists and auctioneers like Bryce Holdaway, Rich Harvey, Kate Bakos, Damien Cooley, Justin Nickerson, Lawrence Staley and a bunch of others, along with my own experience gleaned over the last 35 years. I’ve also drawn excerpts from Patrick Bright’s great book The Insider’s Guide to Saving Thousands at Auction.
So auction day’s finally arrived, and you’re fully prepared to rock and roll. In the run up to the big day and as outlined in last week’s discussion on auction preparation, you’ve attended lots of auctions for similar properties, especially with the auctioneer that’s going to be selling the property that you’re interested in. You have pre-set your dream price, your fair price and your walk away price limits while avoiding round or even numbers, and you’ve organised a full finance pre-approval with a comfortable buffer. You’ve also completed a professional independent building and pest inspection, and you conveyancer has reviewed the property contract and you’ve negotiated and agreed any condition variations in writing in advance. And finally, if you’re really serious about giving yourself the absolute best chance of securing a property at or below your desired price, you’ve engaged a professional, independent buyer’s agent to act on your behalf to remove the biggest risk to your bidding success, and that’s you and your emotional attachment.
Now, this pre-action preparation combination will ensure that you’re fully prepared, calm, comfortable and confident on auction day, as auction performance is all about feeling and projecting confidence, because your success mindset is very important in the cut and thrust of auctions. So before you go to the auction, you need to be very clear in your mind that you really want that property. You need to ask yourself, “do I really want this property?” If the answer is an absolute full body, yes, then arrive at the auction determined and confident to win. Now this sounds really basic, but many buyers just don’t actually do this. They turn up feeling not quite sure if they really want the property or they’re lacking confidence that they’re going to be able to win. And if you keep losing at auctions, then it starts to further impact your confidence and you lose momentum.
So start by being determined to succeed from the outset. Now that you’ve got all of your auction ducks in a row, as auction day dawns, you’re pumped and confident that you’re going to be in with a cracking chance of winning the property. And then, like most others, you arrived at the auction to find a long line of registered bidders with the same hopes as you. Now remember that auctions are deliberately designed to be high pressure environments aimed at disarming you as a buyer and stirring up the emotions of greed and fear in a highly competitive, fast-moving and very public crowd environment where you are under the spotlight and it’s easy to end up bidding well above your limit or worse still, get paralysed with fear and not build at all. Now, given this, it’s best to always expect the unexpected. Auctions can often be fast paced, as there may be some very strong bidders in attendance. So going into an auction expecting but having strategies in place to handle the unexpected. This is an absolutely imperative. And remember, prices at auctions can shoot up very quickly and auctions can be met with fierce competition from other buyers. There are also often two or more sales assistants floating through the auction room room or amongst the crowd, constantly taking down numbers and communicating with the auctioneer. And you may even get a visit from a selling agent themselves to talk to you about your actual bid. Nervous energy here is on overdrive, and with figures flying through the air like machine gun bullets, an auctioneer talking at the speed of light, and paddles, fingers and eyebrows going up left, right and centre, the high pressure straight theatre can be really frightening and overwhelming, regardless of how prepared you feel prior to the day. But it doesn’t have to be. If you’re well-prepared, both financially, mentally, emotionally and strategically, auctions can actually be a pretty exciting event, and your success all revolves around your sense of confidence and control.
Now I’ve often heard auction bidding as being a bit like you’re all sprinting headlong on a cliff and you outlast the competition by skidding to a sudden stop just before you fall over the edge. In this environment, you need to feel and show unwavering confidence. You need to give the impression that you’ve got money and lots more money left so that your competitors will often give up because I think you’ll just keep going. So how do you build your actual and perceived confidence? Firstly, fully understanding the process on the day is the key to feeling more comfortable in auctions, whether in person, on site or online. And there’s some basic auction rules that apply right across the country, regardless of what state or territory prior to the auction.
The vendor or seller with the help of the selling agent may nominate a reserve price, which is the minimum price the seller will accept for the property. The reserve is not usually advertised, and as soon as the bidding goes beyond the reserve price, the property is going to be sold. Now, while this is a requirement in some states and others, it’s merely a suggestion. As well as this, throughout the country, it’s generally an accepted premise that the highest bidder has the first right to negotiate if the property doesn’t reach its reserve price. Other rules that apply nationwide in court include the immediate payment of a deposit and the signing of the contract on the day. The deposits are normally 10 percent of the purchase price. So make sure you’ve organised a bank checking advance a personal check or cash and have it in your back pocket on the day.
In addition, as a general rule, the auction is permitted to make at least one and sometimes more bids on behalf of the vendor known as a vendor bid, and this must generally be stated before the bid is made. These bend orbits are generally made by the auctioneer to help move the auction along. Next comes registration at the actual auction, depending on what state you’re purchasing. You may be required to register as a bidder in these situations. You’ll be given a bidders number, which is the only way to communicate bids throughout the auction. In some states, for example, Queensland and New South Wales only registered bidders have permitted the bid at the auction. You need to provide your name, address and telephone number, and you’ll be required to show proof of I.D., such as a driver’s licence or passport. Each state and territory has different regulations, so always find out what’s required of you for registration prior to auction day and make sure you register early, then subtly keep an eye on who else is registering so you can get a sense of who your competition is next.
Make sure you familiarise yourself with all of the auction jargon. Terms are going to be flying around, such as reserve rises and advances and vendor and dummy bids. Understanding what these terms refer to when I mean that you’ll know what’s going on, it’s also going to give you a greater sense of comfort and control. One of the most important terms to listen out for is the property has been declared on the market. This means that the reserve price is being met in one of the previous bids, and the highest price offered from that point on means that the property is actually going to be sold to declare the official opening the auction. The auctioneer will run through the property being auction, details the features and gives a general overview of what’s included in the auction. It also needs to announce the terms and conditions in accordance with the state’s law and the rules of the auction and during the auction. All bids must be recorded and if this is already sounding very imposing, remember that and had an auction. If you’re not comfortable bidding on your own, you can nominate someone else to bid on your behalf. As long as your nomination is in writing via a power of attorney or another written document that’s been agreed prior to the auction by the selling agent and don’t like this to the day and ensure that this is a great woman in advance. So if you want someone else to bid on your behalf, they must give the auctioneer bidding authority from you before the auction actually starts. The letter must include your name, address and details and proof of identity, such as a driver’s licence or your passport.
Now, before we get to advanced auction day bidding strategy and tactics, let’s start by looking at the things that you should never do at auction. As auctions are adrenaline fuelled displays of nervy body language, calculated action and strategic thinking, if you make the right moves, then that dream home or investment could finally be yours. But if you make an unintentional mistake that reveals your bidding weaknesses, it could be game over for your auction strategy before the gavel comes down. So while there’s no exact method to the madness or magic bullet for success at auction because every auction dynamic is completely different. There are a number of bidding behaviours that you should avoid if you’re serious about securing the property. So here’s what you shouldn’t do at an auction.
Firstly, don’t show excitement. Stay cool, calm and collected of all times. You don’t want other bidders knowing what your intentions are. Secondly, don’t talk to your partner once the auction has begun. When couples start on one another, often whispering panic stricken whispers and numbers under their breath. It’s an absolute sure sign they’re fresh out of money or they’re close to their limit. Revealing that you’ve reached your absolute maximum limit will give other, more confident bidders the edge. Even if you’ve got a few extra thousand to tap into, exposing yourselves as financially confined can give the competition the confidence they need to have big. Thirdly, don’t phone a friend unless you’ve been on the phone throughout the auctions entirely to liaise with another party. Making anxious midsection phone calls or obvious texts is a sign that you’re approaching the end of your bidding capacity. Like a pack of hyaenas cashed up, investors will sense their opportunity and descend on you in an instant, almost smelling that you’re out of the race. Next, don’t let your body language give you away. Try to keep your body language and facial expressions neutral, even at the most tense of times. If bids are escalating, don’t expose the fear that you’re nearing the end of your budget. If you do lose out, remain gracious and bow out quietly. Another don’t do is don’t bring the whole family along when you’re attending an auction for a property, but you’ve got your heart set on. It’s very tempting to round up the whole family to partake in what could be a very exciting day. Doing so exposes how keen you are on the property and may signal to the agent and the auctioneer, that you’re prepared to push your limits because you’ve fallen in love with the home. Investing too heavily in the emotion on auction day can put you in a weakened position when it comes to passing negotiations as well, should you choose to repeatedly bring mum, dad and cousin Fred to every promising property, you’ll soon expose your financial position to the auctioneer and other bidders. You want to keep your cards as close to your chest as possible. As country singer Kenny Rogers used to say, “you’ve got to know when to hold em, know when to fold them, know when to walk away and know when to run.” Another tip is don’t overdress. If you show up to a Saturday morning auction looking like you’re heading straight off to a wedding or a funeral, you’ll be turning heads for all the wrong reasons. While you might think it signals confidence and cash in the bank, it’s only really an acceptable strategy if you actually have a bottomless budget and a penchant for expensive suits. Once bidding commences, you could be outed as a budget stricken buyer, making yourself competition fodder for the savvy of buyers with deeper pockets that are ready to bid. Another obvious don’t is not to be rude to the auctioneer. Bad etiquette will get you nowhere, and it certainly won’t do you any favours should the property actually passing.
Remember, it’s not all about the numbers because relationships go a long way here as well. Next? Don’t make silly bids, bid with confidence, but be realistic. It doesn’t matter how often you’re raising your bid if you’re still 50000 below the reserve, but low, unrealistic bids won’t change the outcome. Bid with the intention of reaching reserve and then use your considered bidding strategy to score the property to the best possible price. More on this later.
Next, many auction experts recommend to never bid against yourself one of the rules you must follow if you want to buy well, an auction is to never bet against yourself. The other sounds obvious, but you’d be surprised how often this happens. If you’re the highest bidder and everyone else has stop bidding. Never increase your bid, no matter how much pressure the auctioneer or the selling agent puts you under. Unfortunately, this happens far too frequently. The selling agent will go to the highest bidder and say, we’re close with nearly reach the reserve, but I need you to give me another $20000. If the highest bidder won’t play ball, then they may go ask the bidders, but usually the other bidders aren’t prepared to bid because they’re not the highest bidder and they’ve stopped bidding. Now, selling agents and auctioneers have all sorts of sneaky tricks to pressure the highest bidder into increasing their current offer. The psychological tricks and language they use often come from NLP, which stands for neuro linguistic programming. The word, the word patterns and the phrasing they use are designed to speak to your subconscious mind. And make no mistake, these work and are very powerful, especially when you’re under pressure or in an emotional state, they’re so powerful, in fact, that the police and Defence Forces actually use NLP techniques when they interrogate people, and some people don’t even need to be asked to bid against themselves. Surprisingly, this also happens too often. It happens when the highest bidder loses track of their bids is so nervous, caught up in the excitement of the bidding process, or confused that they raise their own bid. Now, this sounds a bit ridiculous. However, it’s easy to do if you’re not calm and relaxed. The auctioneer certainly isn’t going to bring it to your attention, and it’s not uncommon in auctions with big crowds that are moving fast. The different bidders will bid against themselves without even realising it. So don’t fall in the auctioneers traps, auctioneers use a number of techniques to get buyers to keep pushing the price up, calling the property prematurely, with a number of the old going ‘once, going twice, going for the third and final time’ trick is actually an urgency tool that auctioneers use to encourage a bid out of you as it plays into your fear that you’re going to miss out.
Auctioneers also use their own body language to encourage another bid by making buyers think that the property is about to be sold. The grabbing of the gavel or the hammer by the auctioneer, for example, can make you think that the reserve price is about to be met and the property is about to be sold. So if you’re an inexperienced auction buyer or you’re intimidated by the auction process, you might want to avoid bidding altogether to prevent mistakes in the heat of the moment by nominating someone else like a professional buyer’s agent to bid for you on your behalf. This helps ensure that you don’t fall for the psychological tricks, and you need to beware of yours and others body language. Inexperienced auction goer will tell you that mind games are part of the property auction process. In this regard, body language is an important thing to look out for during auctions. Your competitors, as well as the auctioneer, will be looking at how you act throughout the auction. For example, as I’ve already mentioned, making a phone call during bidding could indicate that you’ve hit your budget limit, so you need to use body language to your advantage as well. Look for signs of hesitations or doubt or long chats with buyer’s agents while it to help you establish if your opponents might be available or in for the long haul. It’s also important to keep an eye on the auctioneer. What’s are the interactions between the auctioneer and the seller and the seller’s agent, to get an idea of how the auction is going from their perspective. Whether the reserve price is about to be reached or if the property is likely to be passed in?
And finally, forget about your ego and leave it in the car. While you want to be determined to win and you need to be bold in your bidding strategy to scare off any competition. Make sure you remain calm and rational. Don’t get caught up in a bidding war and find yourself going beyond your maximum budget in the excitement of the moment, or for a sense of ego in needing to win in this regard. It’s good to go with a partner, so one of you can suddenly keep the other in check. If another bidder jumps in and the price goes beyond your maximum budget, be philosophical. Walk away knowing there’s going to be another opportunity. There’s no need to win just for the sake of winning.
So in summary, in the lead up to the actual auction process on auction day, adopt a confident success mindset. Expect the unexpected. Understand the auction process and the jargon fully. Register early. Remain calm at all times, and my biggest tip is to get a professional buyer’s agent to represent you, to eliminate your emotion as your biggest risk. And try and avoid the seven deadly sins of auctions. Don’t talk to your partner during the bidding. Don’t find a friend. Don’t let your body language give you away. Don’t bring the whole family along. Don’t overdress. Don’t be rude to the auctioneer. Don’t make silly bids. And don’t bet against yourself. In addition, don’t fall for the auctioneers traps and make sure you leave your ego in the car. So that brings us to the close of the background to auction day and what you shouldn’t do. In the next instalment of our auction winning series, I’ll discuss the psychology behind auction day strategies before breaking down your specific bidding tactic options.
That’s more food for thought, I’m Bushy Martin from KnowHow Property Finance.
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