Tips for buying a property at auction

Buying a property at auction can be an extremely daunting and emotional experience. To help make the process easier for prospective buyers, auctioneer Michael Richardson from Fletchers real estate agency provides some of his tips and insights after speaking at a Bankwest Connect Event.

Michael’s top tips for bidding at auction:

  • Position yourself front and centre of the auctioneer
  • Bid in larger increments to put off other bidders
  • Know your plan and budget - and stick to them
  • Don’t make emotional decisions on the day.

Buying Your First Home with Michael Richardson: Connect Event highlights.

Video transcript (PDF)

Before auction day

Determine the value of the property

Michael says that prospective buyers should complete adequate research to understand how much the property is worth. As a buyer, you should look at recent comparable sales in the area to determine a ball park figure for the property’s value.

Determine your price

Using recent comparable sales, buyers can gauge how much they should pay for a property. Michael says that you should determine your ‘like-to-pay price’, but also allow for a buffer for your ‘have-to-pay price’.

Organise your finances

Michael says that to be able to bid at auction, you’ll need unconditional finance approval, so buyers should speak to their lender to secure a pre-approved loan. This is particularly important because, as the winning bidder, you won’t be able to include any special conditions (such as a finance clause) on the auction contract.

Engage the real estate agent

Speak to the real estate agent before auction day to ask any questions you have about the property. According to Michael, this is also the time to negotiate any specific settlement terms in the event you are the winning bidder on the day. For example, you may want a longer settlement period or perhaps you have a smaller deposit than what the seller requires.

Complete necessary property inspections

Prospective buyers should complete building, pest and electrical inspections to ensure there aren’t any major faults with the property. Michael says that although the inspections can cost several hundred dollars, they could save you from buying a property only to find that it needs costly repair work done.

On auction day

Be prepared for all options

Michael suggests having a bidding strategy ready for auction day. He says that prospective buyers should plan for three different scenarios. These are:

  • No bidding - if there are no bids on the property, it will be passed in, meaning the auction ends. In this scenario, Michael says that it’s worth asking the real estate agent what the seller intends to do, as you may be able to negotiate a sale with them.
  • Bidding below reserve price - if the property doesn’t reach the reserve price (the reserve price is set by the seller and is the minimum price that they will accept for the property), the property will be passed in and the auction will end. In these instances, Michael says that whoever has the highest bid will have the exclusive right to negotiate with the seller, so you should still aim to be the highest bidder (provided it’s within your budget). 
  • Bidding above reserve price - when the property has passed the seller’s reserve price, the person with the highest bid will win the auction.

Michael says that the most important part of an auction is having a plan, rather than just turning up on the day and winging it. He says to allow for all scenarios and suggests the following tactics:

  • If the property is passed in, make a plan on how you will negotiate.
  • If it’s a fast-paced auction, hold back and wait until the property has reached the reserve price.
  • If it’s a steady auction and the reserve price has been reached, increase your bids to try and knock out your competition.

Be confident

When bidding at auctions, Michael says that it’s important to display a level of confidence to put off competition. You should position yourself front and centre of the auctioneer to let your presence be known, and be loud and clear in your bids. He also recommends bidding in larger increments to scare off other bidders.

Stick to your plan

Michael says that while auctions can be extremely emotional, it’s important for prospective buyers to be rational. He says that it’s important to stick to your plan, including your budget, and to stop bidding once your limit is reached to avoid buyer’s remorse.

After auction

Winning at auction

If you’ve won the auction, Michael says that you’ll typically be required to sign the contract and provide the deposit immediately – generally via cheque or electronic transfer. However, Michael says that the process differs between states and territories, so it’s best to understand your obligations as the winning bidder prior to auction day.

Typically, your conveyancer or solicitor will complete the necessary legal checks and confirm the settlement date. If you’re taking out a loan to buy the property, you’ll also need to finalise your finance with your lender. Michael says that the winning bidder will have the chance to complete their final inspection before settlement to ensure the property is received as per the sales contract.

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Things you should know

The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48123123124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article.