The 5 Rules to Winning at Auction
Attending an auction is like watching a Formula 1 race. Car racers only get one chance to win or lose. However, you can increase your chances of winning the race if you are prepared for it and follow a well planned strategy.
Like in every Formula 1 race, there is very little room for error so it is very important to know the rules to avoid reducing your chances of a victory.
Firstly, when you buy at auction, you must pay a 10 per cent deposit and there is no cooling off period. So get your finance organized before you attend any auction so that you will be more confident in bidding knowing how much money the bank is prepared to lend you or how much you can spend. You do not want to get caught out if your finance is not successful.
Remember that sticking to a clear strategy can give you the highest chance of a good purchase at a reasonable price.
Rule 1: Familiarize Yourself with Auctions
Get to know auctions before you put your hand up at any auction. Attend as many auctions as you can, to understand how they work and get used to auctions.
Rule 2: Prepare Yourself for the Purchase
Before auction day arrives, you should have organized your finance, have your solicitor check the contract of sale and section 32 and most importantly, decide on the maximum price you are willing to spend up to and stick to it. This firm bidding limit is your strongest tool for auction success.
Rule 3: Bid Only When the Property is Truly “On The Market”
Arrive early and park yourself in a comfortable position and relax. Most auctions have two phases. The first phase is where most of the bidding activity take place and the second phase is where the real bidding happens. The worst thing to happen is to get carried away and pay too much at auction by entering in the first phase and bid against a friend of the seller – or, even worse – against a seller who exists only in the auctioneer’s creative imagination.
Many experts advise that you can maximize your chances of a good price by bidding only after the first phase has finished and the property is declared “on the market” or “selling today”. You should check how the auctioneers behave in your local market. However, in the Melbourne market, particularly, the auctioneer will often make a dramatic and final-sounding declaration like “going once, going twice, third and final time, all done” – and then stop, disappear into the house to “confer with the sellers”, and re-emerge moments later to restart the auction.
When something like this happens, the auction has entered its second phase – the phase where dummy bidders cease their activity and you can begin bidding.
This strategy may occasionally mean you miss an opportunity to bid. However, unless you must have the property almost regardless of cost, this might be your best strategy.
Rule 4: Bid Firmly Up to Your Limit, THEN STOP
When the property is declared to be on the market, the second phase has begun and you are free to bid. Some experienced bidders continue to hang back until the auctioneer is on the verge of selling to another bidder; by suddenly coming in late they hope to psychologically deflate their rival. Your best strategy now is probably to bid firmly, confidently and be quick to suggest to rivals that they won’t win. You can also try to slow the bidding momentum down by offering in smaller amounts.
Rule 5: Never, Ever Break Rule 4
There are no firm rules for auctions but they do have good and bad strategies. For most buyers, the steps above represent the best chance of buying a good property at a good price. And whatever you do, stick to your bidding limit.