Conditioning the body and mind for months of heavy tackles, gravity-defying leaps and nerve-wracking penalties, pre-season is as important an event on the modern footballer’s calendar as the first kick of the season.
For the aspiring homeowner, getting match fit for auction is no different.
Head into this unforgiving arena unprepared and you’ll struggle to fight off the competition; arrive well-informed, and you might just walk away with a new set of keys.
The key to success is to put in the groundwork, suss out the opposition, and stick to your game plan. And then, of course, you need to perform in front of a crowd.
Here’s how to prepare for an auction.
The most important thing to do before auction is to seek pre-approval from your lender so that you know how much you can bid at auction.
“If you don’t, you’re in trouble,” says Frank Valentic, director of Advantage Property Consulting and star of TV show The Block.
“Because, if you buy a property at auction and the bank then rejects your finance application, you’re going to lose your deposit, as offers at auction are unconditional.”
If you’re buying the property through a business, trust, or self-managed super fund, rather than as an individual, then you’ll need to make sure that you set this entity up well in advance of the auction, too.
To be successful at auction, you need to know what a property is worth, and the simplest way to work out the rough value of a home is to compare it with recent sales of similar properties.
Start there, and then attend as many different open for inspections and auctions as possible. This will give you a good feel of the market and provide some insight into the connection between the number of people who attend an inspection and a property’s performance at auction, which will help you to come up with a reasonable bidding limit for each property you attempt to buy.
What’s more, according to Valentic, attending numerous auctions will help you perform on your big day, as you’ll be more comfortable with the process and environment.
“Going to five or 10 auctions just to see how the other bidders bid and how your auctioneer works is a good idea,” he says. “The more experience you have, the better equipped you’re going to be.”
Once you’ve chosen a property on which you plan to bid at auction, you need to interrogate its value in greater detail.
Just as an AFL coach wouldn’t pick a player in the draft without thoroughly analysing their strengths and weaknesses, you need to make sure that the property going under the hammer has good bones and is built on strong foundations.
First, book a pest and building inspection, so that you know exactly what’s up for grabs. If you don’t, you won’t be able to go back on a deal should you find any serious issues later on.
Second, ask a solicitor to look through the contract of sale, to ensure that it doesn’t contain any unfavourable terms.
And third, make sure that the vendor’s agent agrees to any special terms you intend to make your offer subject to, as you won’t be able to negotiate these terms after you’ve submitted a bid.
After you’ve determined the quality of the prize, it’s time to suss out the competition.
Personally attending or asking friends to attend all the open for inspections for the property you want to buy is essential homework for serious bidders. You should take note of the number of people in attendance, and try to listen into people’s conversations, to get a good idea of what they think about the property.
Your research shouldn’t end there, either.
According to Valentic, you should ask the selling agent how many people have attended inspections, what type of person is showing interest in the property, how many building reports have been done, and how many people have requested to see the section 32 vendor statement.
“It’s really important to have a relationship with the selling agent, as it will help you understand the level of interest,” says Valentic.
“If a property has been visited by over 50 groups through the campaign, that’s a pretty good number. If it’s only had 10 or 15, then that’s pretty low and suggests there’s not a lot of interest.
“If someone has spent between $400 and $600 on a building report, that suggests they’re serious and are going to bid on the day.”
There are plenty of different bidding strategies to consider at auction, but, ultimately, the best game plan is the one that’s tailored to the opposition you’re up against.
If there’s strong interest from a lot of different parties, Valentic says coming in with a high first bid is a good idea, as this will dishearten bidders with lower budgets before the emotion of the day encourages them to bid beyond their means.
“If the property has been quoted as $900,000 to $990,000 and I know that there’s a fair bit of interest and someone starts the bidding at $900,000, I’d probably come in at $960,000 or $970,000,” he says.
“That should knock out a few other bidders, which is good, because I don’t want there to be four or five, or six people bidding, as they will push each other on, and then they’ll get emotional and push the price up.”
Meanwhile, if interest is low, Valentic suggests a more conservative approach. In the above scenario, he says he would ease in at $900,000 or $910,000, keep the bidding slow, and reduce the increments to $5,000 or below.
“You want to hope the property passes in below the reserve, because that means you’re in the best position to take advantage of negotiations after auction,” he says.
“That’s the ultimate goal in the current market, but you need to be the highest bidder to make this a smart strategy, as that will give you sole rights to negotiate the vender’s reserve.”
If the market is really slow, realestate.com.au chief economist Nerida Conisbee even suggests submitting an offer before the property goes under the hammer.
“When the market’s soft, some vendors will be quite happy to get a bid beforehand, as this will save them from having to go through the whole auction process,” she says.
“Auctions are typically seen as the best way of getting the highest price in a strong market, but a lot of sellers aren’t all that comfortable going to auction.”
There’s a reason why auctions are likened to sport: Something valuable is on the line, the outcome depends on your performance, and there’s always a fair share of spectators looking on with bated breath.
To succeed, you need to switch off all distracting emotions, stick to your budget and game plan, and remember all that you learnt from attending past auctions.
Either that, or ask someone to bid on your behalf, which is Valentic’s auction strategy of choice.
“Get someone to bid for you – whether that’s a buyers’ advocate, your real estate agent, or your mum or dad,” he says.
“They’ll be able to take the emotion away from it and bid with their head, rather than their heart.”
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