Buying at auction can be exciting, fast-paced and, if you’re not properly prepared, a very expensive way to get caught up in the moment.
For property investors, the goal isn’t simply to win the auction. It’s to secure the right property at a price that still makes sense for your investment strategy.
That means doing the hard work before auction day, knowing your limits and being prepared to walk away if the numbers no longer stack up.
What should you know before buying at auction?
An auction works very differently from purchasing a property through a standard private sale.
If you’re the successful bidder, the sale is generally unconditional. There’s no cooling-off period after the hammer falls, so you need to be comfortable with the property, the contract and your finances before you bid.
This makes your pre-auction preparation particularly important.
Have the contract reviewed by your conveyancer or solicitor, organise any appropriate building and pest inspections and make sure you’ve completed your own due diligence on the property.
You should also have your finance organised and understand exactly what deposit will be required if you’re successful.
Auction day is not the time to start figuring these things out.
How do you decide what the property is worth?
This is where investors need to take some of the emotion out of the process.
Research recent comparable sales in the area, look at current market conditions and consider the property’s potential rental return, ongoing costs and any work it may need.
Remember, the question isn’t simply:
“How much am I willing to pay?”
It’s:
“At what price does this property still make sense as an investment?”
Those can be two very different numbers.
Setting your maximum before auction day gives you a clear line in the sand when bidding starts to heat up.
What should you do before auction day?
Give yourself enough time to properly investigate the property rather than leaving everything until the last minute.
Request the contract early so your conveyancer or solicitor has time to review it. If there are changes you’d like to request, these generally need to be discussed before the auction.
Research the property and surrounding market, complete relevant inspections and make sure you understand the conditions of sale.
It’s also worth attending a few auctions before you’re ready to buy.
Watching how bidding unfolds can help you become familiar with the pace, terminology and pressure of an auction without having thousands of dollars riding on the outcome.
How should investors approach bidding?
There’s no single bidding strategy that guarantees success.
Some bidders prefer to enter early and bid confidently. Others wait to see how much competition there is before becoming involved.
Whichever approach you choose, the most important part of buying at auction is knowing your maximum and sticking to it.
Auctions are designed to create competition, and it’s surprisingly easy for another $1,000, $5,000 or $10,000 to suddenly feel insignificant when you’re determined to win.
But you’re not there to win a bidding contest.
You’re there to make a sound investment decision.
If bidding moves beyond the price you’ve decided the property is worth, be prepared to stop.
There will always be another property.
What happens if the property passes in?
Not every auction ends with the property selling under the hammer.
If bidding doesn’t reach the seller’s reserve price, the property may be passed in. Depending on the circumstances, the highest bidder may then have the first opportunity to negotiate with the seller.
This doesn’t mean it’s time to abandon your budget.
The same numbers and investment criteria you established before the auction should continue to guide any negotiations afterwards.
Is buying at auction right for every investor?
Not necessarily.
Auctions can provide an opportunity to secure a property quickly, but the unconditional nature of the sale means there is less room to sort things out afterwards.
For investors, preparation matters far more than bravado.
Do your research, understand the contract, have your finances ready and decide what the property is worth to you before bidding begins.
Most importantly, don’t let the excitement of auction day turn a carefully considered investment into an emotional purchase.
If you’re considering adding another property to your portfolio, the team at AMKAR Real Estate can provide insight into the local property and rental market to help you make a more informed decision.
Disclaimer: This article provides general information only and does not constitute financial, investment or legal advice. Auction rules and requirements may vary. Always seek independent legal, financial and property advice appropriate to your circumstances before purchasing a property.