How to Prepare and Bid Wisely at Your First Auction Day
Buying a home can be nerve wracking. Throw an auction into the mix and many think of it as figures flying through the air, an auctioneer talking at the speed of light and paddles going up left, right and centre which could be downright frightening.
But, it doesn’t have to be!
If you’re well-prepared financially, mentally and emotionally, auctions can actually be a pretty exciting event. Remember, if you succeed at auction, you’ll be walking away as a very proud homeowner. And that’s a huge right of passage for anyone and everyone.
Auctions at a glance
Understanding the process is key to feeling more comfortable at auctions, whether in-person or online.
There are some basic rules that apply throughout Australia, regardless of what state or territory you live in. Prior to the auction, the vendor, with the help of the selling agent, may nominate a reserve price. The reserve is not usually advertised and as soon as the bidding goes beyond the reserve price, the property will be sold. While this is a requirement in some states, it’s merely a suggestion in others.
As well as this, throughout the country, it is the highest bidder who has the first right to negotiate if the property doesn’t reach its reserve price. Other rules that apply nationwide include the immediate payment of a deposit and signing of the contract. In addition, as a general rule, the auctioneer is permitted to make one bid on behalf of the vendor, known as a ‘vendor bid’, but this must be stated before the bid is made. These are generally made to help move the auction along.
Of course, especially in today’s digital world, auctions can take place either in-person or online. These auction types do differ slightly, with rules changing from state to state.
In-person auctions
When it comes to in-person auctions, the benefit is that the competition is clear cut and you can see and feel the room much more easily than you can at an online event. It also means the potential purchasers are in control of what they believe the property is worth, compared to the vendor dictating what they want.
At the actual auction, depending on what state you are purchasing in, you may be required to register as a bidder. In these situations, you’ll be given a bidder’s number which is the only way to communicate bids throughout the auction. In some states, for example Queensland and NSW, only registered bidders are permitted to bid at the auction.
The auctioneer will run through the property being auctioned, detailing the features and giving a general overview of what is included. The auctioneer also needs to announce the terms and conditions in accordance with the state’s law and the rules of the auction. During the auction, all bids must be recorded.
Remember, at an auction, if you are not comfortable bidding on your own, you can nominate someone else to bid on your behalf.
Online auctions
The real estate market had to adapt in 2020, meaning that many inspections and auctions were pivoted online. While online auctions have been around for years, it wasn’t until 2020 that they were embraced by the general community, with potential buyers seeing the convenience and ease they provided.
Generally speaking, online auctions run the same way as an in-person auction, however there are some key differences. The main difference of course, is being able to bid from anywhere, and the vendor can log in to the virtual auction to follow the auction in real time.
Preparing for the auction
So, you’ve toured the home and fallen in love. You can envisage yourself parked on the couch in the living room, floating through the rooms and cooking in the kitchen. Now it’s time to knuckle down and get serious.
How can you mentally, emotionally and financially prepare yourself?
Let’s start with your finances
Before you even go to home inspections, it’s absolutely critical to ensure you have your finances sorted. It’s no use going through homes that you know you won’t be able to afford! If you’ll require a bank loan, which the majority of first homebuyers will need, discuss your options with the relevant loan specialists and have your pre-approval ready to go.
Remember, if you are successful at auction, it’s a legal requirement to pay the deposit on the day. This is usually 10% but it may vary depending on any negotiations that have happened previously, so always be prepared.
Organise a final inspection
Prior to auction day, go through the home one final time. There are no ‘take-backs’ when it comes to an auction, so you need to be absolutely certain that this is your first, or even next home.
It’s also crucial to conduct all necessary inspections to ensure the building is sound. Pest and building inspections should be done on all properties you are serious about buying. Understanding what is wrong with the property and what finances may be required to renovate or fix the damages will impact your purchase price capabilities.
Understand your price limit
As mentioned previously, understanding the top price you can go is one of the most important elements of auction day. If you don’t know what you can afford, there is potential to go above your means.
Have a thorough understanding of the highest price you can go and completely understand that you cannot go above it. Remember, there are hidden costs when buying a home - consider everything you need to allocate dollars to including legal, moving day, inspections and insurance. These must be included in your final purchase budget which may mean your bidding limit is actually lower than you thought.
Also, there’s no point in looking at what you can’t afford. The property game is often referred to as a ladder, and you’re just at the first rung - there are plenty of years ahead of you to climb to the top.
Familiarise yourself with auction jargon
Terms will be flying around such as ‘reserve’, ‘rises and advances’ and ‘vendor and dummy bids’. Understanding what these terms refer to will not only mean you’ll know what’s going on, but it also gives you a sense of comfort and control. One of the most important terms to listen out for is ‘on the market’. This means the reserve price has been met in one of the bids and the highest price offered from now on means the property will be sold.
One of the best ways to familiarise yourself with the auction process is to attend some auctions prior. This will give you a unique perspective of how it all happens and also the different outcomes that may occur.
If you can’t go in person, it’s very quick and easy to observe online auctions.
Register for the auction
Depending on what state you are purchasing in, you may need to register as a bidder. You’ll need to provide your name, address and telephone number and you’ll be required to show proof of ID such as a driver's licence or passport. Each state and territory has different regulations so always find out what is required of you prior to auction day. Your LJ Hooker agent will be able to advise you.
Things to keep in mind on auction day
It’s very easy to get emotional when it comes to homes, especially if it’s one you’ll be moving into. It’s important to remain unemotional when bidding. Steady, firm and unemotional bidding is the best tactic. Set your limits and stick to them.
Consider what kind of bidder you want to be
People will bid in different ways. Some will lead the bidding, others will quietly assess the room before jumping into the bidding later on. Some will jump in bigger numbers than others. There is no right or wrong way. The important thing is to use an approach that aligns with your price limit and to have confidence. If you are a newbie in the game, by remaining steady, reading the room and being patient, you’ll have a better chance of walking home a first homebuyer.
Of course, there are plenty of tactics you can employ, such as bidding in odd increments or counter-bidding without hesitation immediately following a competitor bid, but it’s important to always keep your top price in the back of your mind and never go beyond your means.
Expect the unexpected
Auctions can be fast-paced, as there may be some very strong bidders in attendance. Going into an auction expecting, but having strategies in place to handle the unexpected, is imperative.
Remember, prices at auctions can shoot up very quickly and auctions can be met with fierce competitions from buyers. There are also often two or more assistants floating through the room constantly taking down numbers and communicating with the auctioneer, and you may even get a visit from the selling agent themselves to talk to you about your bid.
You need to stay as level-headed as you can. You also need to be prepared for the chance that the property will be ‘passed in’. A home is ‘passed in’ when the bidding at an auction falls short of the reserve price and the prospective buyer, vendor and agent steel for a round of negotiations.
Familiarise yourself with the next steps
If the property is sold ‘under the hammer’, the purchaser is required to pay the deposit immediately, which is why it’s so critical that your finances are in order. The contract also needs to be signed. In this case, congratulations, you’re a homeowner!
However, there may be situations when the property is ‘passed in’. This means no bids have reached the reserve price and the vendor is not prepared to sell it at the reduced price. The highest bidder will have first negotiation rights in this situation. This does not necessarily mean you will walk away with the home. It just means that you go first when negotiating with the vendor. Often, this will happen straight away. The agent will be the go-between trying to find the middle ground between the two expected purchase prices. Just like in the auction, stay cool, calm and collected, and always keep that final figure in mind - stick to it.
Buying at auction with LJ Hooker
There are few greater feelings than knowing you’ll be collecting the keys to your new home. It’s an emotional moment and any homebuyer should be proud of themselves for purchasing such a big asset. Remember, auctions can be intimidating for even the most experienced of property buyers, so the fact that you’ve not only made it through one but walked away a homeowner is a fantastic feat. Congratulations and enjoy making memories in your new home!
Our team at LJ Hooker is waiting to assist you, whether you’re a buyer or a seller, through the world of auctions. We can help you understand auctions and feel comfortable in the room, whether virtual or in person.
Voted Australia’s number one real estate brand, a little help from the team at LJ Hooker can be invaluable when it comes to facing your very first auction and succeeding with your home purchase.
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DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency, or completeness of any information or links.