After taking a back seat during the worst of the Covid pandemic last year, auctions are back with a vengeance across Australia.
Data shows auction clearance rates and volumes are now bouncing back, meaning buying at an auction is once again a reality for many purchasers.
According to CoreLogic research, auction volumes increased 44% in the capital cities between September and December last year.
CoreLogic also reported that the clearance rate for all the capitals in the December 2020 quarter was the strongest for the year too, at 69.4%. The previous best was the March quarter figure of 62.5%. Melbourne is leading the charge, as buyers release pent-up demand post lockdown.
CoreLogic has forecast continued growth in auctions this year, as selling conditions remain strong and interest rates remain at record lows.
If you’re one of the growing number of people heading to auction, but you’ve never done it before, there are a few pitfalls to avoid. Before examining the common mistakes made at auctions, let’s take a look at how you can best prepare as a buyer.
How to prepare for an auction as a buyer
Auctions can be nerve-wracking, even for those who are experienced at them, and many can fall into the trap of making decisions based on emotion rather than sound logic. Being well prepared is a good way to keep yourself on track through the highs and lows of an auction.
A good start is to do thorough research on the local market. Find out what other similar properties in the area are selling for and if they’re in high demand. Are there facilities and amenities such as public transport, sport clubs, hospitals and shopping centres close by? This should give you a good idea of a reasonable price range.
If you haven’t been to an auction before, it can be a good idea to attend some as a spectator before you go to one as a bidder. This can give you a better understanding and familiarity of the process and hopefully make you more comfortable when it comes time to throw your hat in the ring.
You should also carefully assess your financial situation before you attend the auction, including putting a firm limit on how much you’re prepared to spend.
Getting loan pre-approval for what you think the property may sell for is vital too, because if you’re the winning bidder, you’ll be expected to pay the deposit and sign the contract that day.
Common mistakes buyers make at auction
There are quite a few traps for those new to the auction process and two of the biggest are not being prepared and overbidding, as you get caught up in the excitement of the day. Being prepared and developing a plan will help overcome these pitfalls.
Here’s some of the most common mistakes buyers make at auction and how to avoid them.
Lack of preparation
Before the auction, the only thing you shouldn’t know is who’s going to make the successful bid.
Ensure you’ve done your research into the local market to determine a realistic value for the property, so you avoid overpaying and give yourself the confidence to bid with surety.
Find out what other similar properties in the area have sold for. Discuss the local market with a range of estate agents, attend other auctions in the area and ultimately set yourself a limit you’re not prepared to go beyond.
Getting a pre-approval for a home loan in the range of the expected price could give you a solid basis for this upper limit and give you more confidence on the day. Remember to allow for the time it will take for potential lenders to go through a full financial assessment.
You should also have completed all the relevant inspections before auction day, including building, pest and council reports.
It’s wise to go into the auction with a comprehensive bidding strategy.
- What increments you’re prepared to go up to
- Ensuring you get there early to be located where you can be seen by the auctioneer and also able to see the other bidders
- What tone of voice you will adopt and even what type of clothing you wear.
Having all this settled before the day can help you avoid distractions and stay focused on the sale itself.
On the day, remember to bring ID with you and be ready to register with the selling agent so you can receive a bidding number.
During this registration process, take the opportunity to ask the agent any last-minute questions, such as the options are available for paying the deposit.
Skipping a legal review of the contract
Paying a few hundred dollars to get a lawyer to look over the contract of sale before the auction could potentially save you thousands later down the track.
While there are of course clauses that are general for all contracts, it’s rare that there are no specific special conditions attached to the sale. These can cover such items as special permissions for extra buildings on the property or rights of access.
Keep in mind that if you make the successful bid at an auction, you have to sign an unconditional contract and pay a deposit.
Some contracts of sale could throw up some nasty surprises that you find out too late. These can include covenants preventing you from being able to do certain activities on the property and specific requirements around financing that you didn’t expect.
Losing touch with your agent
Just because a property has been listed for auction doesn’t mean it can’t be sold beforehand.
There are very few exceptions to this, so if you’ve done your research and really want the property, make an offer before it even goes to auction. If the property is in demand, others may have done this already.
In some cases, vendors may insist on seeing what they can get on auction day, but you can also end up in a situation where you show up for a sale to find it has already sold.
Keep in touch with the selling agent to get up-to-date info on the auction and any other offers. It also reminds them you’re still in the mix.
Letting emotions blur good judgement
An auction can a highly charged atmosphere and it can be easy to get swept away in the moment, especially if you have your heart set on a property.
Remember that the purchase is a major one and you should be guided by clear-headed financial logic.
Develop a bidding strategy that includes what increments you’re prepared to go up in, not racing excitedly to your highest offer straight up and so on. Keep your own tempo in the bidding and try to avoid getting rushed by the selling agent or auctioneer.
A good strategy to avoid getting rushed is to bid in an increment that is different to the standard increment the auctioneer is following, possibly slowing them down as they perform the different math in their head.
Perhaps most importantly, know exactly what your maximum limit is and be prepared to step back if it’s passed. If you find you let emotion make you overbid, you may have to walk away from the sale afterwards, forfeiting your deposit.
Ensure you bid confidently and remember to watch the body language of the other bidders.
Overlooking research on price and value
There are quite a few reasons why you should ensure you research what the potential market value of the property is before auction day.
Before doing anything, you need to know if you can afford the property. Make sure you get access to data on actual sales prices for similar properties in the area and not just take the word of the selling agent.
If you can afford the property, you can get conditional approval for a realistic price before auction day and you’ll also have a benchmark to indicate if bids are going beyond reasonable levels.
Overbidding could end up with you either having to pull out of the sale or with a property the market values less than what you’ve paid.
Neglecting to arrange finance approval
Unless you’re absolutely certain of your ability to pay for a successful bid, it’s highly advisable to get pre-approval for the amount you’re willing to pay. This will give you the confidence to bid with surety and also give you an upper limit to work with.
Irrespective of whether you’re approved for finance, if you make the successful bid, you’ll be expected to sign an unconditional contract and pay a deposit for the property.
If you do not get pre-approval, this may mean you will have to back out of the sale if a loan is not approved, forfeiting your deposit.
Words by Erin Delahunty
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