How to make auctions work for you

Buying a home in Australia can be thrilling and stressful at the same time, but many buyers end up taking a lot longer to find their dream home because they automatically scroll past homes listed to sell at auction.

If you have the mindset that you’ll never win at auction and have been avoiding these properties, take a look at the following:

Why do some homes sell at auction while others sell for private treaty?

When a real estate agent connects with a home seller, they will have a discussion and come up with a selling strategy. Holding an auction may be favoured over a private treaty sale if the agent believes there will be good competition between buyers, or if it’s not easy to figure out how much the home may sell for.

Not all sellers want to hold an auction but if the agent is confident there will be multiple bidders on the day, the decision may be made to take this approach. A seller might also choose to go to auction so there is less ambiguity about when the home will be sold (private treaty sales can stretch on for weeks or months).

Selling at auction doesn’t necessarily mean the home will sell for more than it’s worth. Often, only a handful of bidders show up and the final price is very reasonable.

Why bid at auction?

There are several reasons why you shouldn’t overlook properties that are listed to sell at an auction:

• Potential bargains: Depending on the market, auctions sometimes present opportunities to purchase a property at a lower price than through private sale, especially if there are fewer bidders or if the seller is very motivated to have the home sold on the day.

• Transparency: The auction process is open and transparent, so you know what others are willing to pay. This can help ensure you pay the market value rather than an inflated price.

• Immediate outcome: Auctions provide a clear and immediate outcome. If you’re the highest bidder and meet the reserve price, the property is yours, with no follow up negotiation process.

• No competing offers post-auction: Once the hammer falls, the property is yours, and there’s no risk of being outbid by a higher offer after the auction, which can happen in private sales.

• Pre-auction negotiations: If you’re genuinely interested in a property, you can sometimes negotiate with the seller before the auction. This can lead to a purchase without the auction or at a price you’re comfortable with.

Finally, if there are no bidders or the reserve isn’t met, you may have the opportunity to negotiate a sale after the auction.

There are a few key points to remember before you head to auction:

• Pre-auction inspection: Take a thorough look at the property before the auction date and invest in a professional building inspection. Auctions are unconditional, meaning once you win the bid, you’re legally obligated to proceed with the purchase, so it’s essential to ensure the property meets your standards.

• Deposit requirements: If you win the auction, you will need to pay a deposit immediately, typically 10% of the purchase price. Ensure you have this amount readily available.

• No cooling-off period: Unlike private treaty sales, auctions do not have a cooling-off period. Once the hammer falls, you are committed to buying the property, so be certain before you bid.

Tips for buying at auction

Research is key to making auctions work for you. Knowing the market value of the property and the current market conditions will help you make informed decisions so you don’t get over-excited on auction day. Here are some steps to consider:

• Check out comparable sales: Look at recent sales of similar properties in the area to get an idea of the property’s value. This will help you set a realistic budget.

• Market conditions: Know whether it’s a buyer’s or seller’s market. In a buyer’s market, there may be fewer bidders, and you could have a better chance of securing a property at a lower price. In a seller’s market, be prepared for more competition and potentially higher prices.

• Terms of sale: Read the contract thoroughly and seek advice from a property lawyer or conveyancer. This will ensure you are fully aware of what you will be agreeing to on the day.

• Price: It’s easy to get caught up in the excitement of an auction, but it’s important to set a budget beforehand and stick to it. Determine the maximum amount you are willing to pay for the property, factoring in additional costs such as stamp duty, legal fees and any potential repairs or renovations. Once you have set your budget, resist the temptation to exceed it, no matter how competitive the bidding becomes. If you’re worried you will get carried away, look into having a buyer’s agent or real estate agent bid on your behalf.

• Work out your strategy: There is a lot of talk about how to win at auction, but really the only way to win is by being the highest bidder. However, you can have a plan for the increments you will bid in, which can prevent you from paying tens of thousands more than you need to.

• Practice: Buying at auction can be daunting so head to a few auctions in your neighbourhood to check out how it all works and see how other people do it.

• Delegate: A buyer’s agent or real estate agent can provide a service to bid on your behalf, taking the stress off your shoulders.

There’s nothing like the thrill of being the winning bidder on auction day. By showing up to auctions, you also position yourself to negotiate for a sale if bidding doesn’t meet the reserve.