Why first-time investors should stick to their strategy at auction (DOs & DON’Ts)
First-time investors can snap up a great property at auction by sticking to their strategy.
While auctions can sometimes create a pressure-cooker environment that force prices up, buyers who’ve done their homework can still come out on top.
If you can keep your wits about you and your emotions in check, auctions can provide better value than home open negotiating because you don’t have to guess what other buyers are thinking and come up with a fool-proof offer to beat theirs – the offers are on the table for all to see.
In a private treaty, the real estate agent can extract more money because there’s no way of knowing for sure what other buyers are offering.
And while in WA, auctions are a lot more transparent than they used to be and auctioneers are regulated and required to disclose vendor bids, seller’s agents might sometimes plant colleagues in the crowd to place bids.
Even in a cooler property cycle, investors need to be careful about perceived “bargains” and make sure they stick with their strategy – and budget.
Here’s our top three tips for coming out on top at auction:
Do your homework
Regardless of the market conditions, the key to winning at auction is to set boundaries, be disciplined and undertake in-depth research.
The crucial first step – and the secret to not overpaying at auction – is to figure out what the property is worth. You should do this by researching the sold prices of comparable properties. Make sure they are comparable – in terms of both property type and location. This gives you accurate information about what else is on offer in the marketplace.
From there, decide on your maximum purchase price – and stick to it at the auction. If you don’t think you can do that, consider hiring a professional to bid on your behalf, or bring a rational, trusted friend.
Be confident in your bidding strategy
There are a range of strategies you can adopt. You can start early and bid quickly, which demonstrates confidence and certainty to other bidders, or emerge later as a surprise bidder. If you wait, be sure you’ll have the confidence to come in later. What’s great about an auction is its transparency, so you will only pay a little more than your competitors to secure a property. But, again, be sure it is within your budget, not over market value and not in response to pressure from the sales agent.
It’s also worth attending a few auctions – an ideal way to get used to the atmosphere and you can role-play different scenarios to help you stay calm on the day.
Remember it’s unconditional
It’s important to remember that the contract at auction is unconditional, so you have to arrange relevant inspections ahead of time.
Properties sold at auction have unconditional contracts so investors need to:
- Check the property and contract of sale thoroughly
- Carry out building and pest inspections
- Obtain the seller’s agreement to any contract variations in writing ahead of the auction day as it can’t be changed afterwards.
ALSO: If you need to assess a lease or tenant or look at issues such as zoning or encumbrances, that also needs to be done and dusted before auction day.
While that’s three things you must do, here’s a few things you must not do.
- Do all the legwork, and then be too afraid to bid
- Be afraid to bid up to your pre-planned ceiling price
- Get emotionally invested and “buy the property at any cost”!
- Skip your research to figure out the right price to pay – buyers often overpay because they haven’t actually established the value of the property.
- Forget to set a hard limit or not sticking to the limit – buyers compete to force prices higher.
- Let the real estate agent intimidate you.
Buyers are successful at auctions when they dig in their heels, stick to their maximum price and refuse to overpay. Taking a professional or trusted friend can combat auction-day jitters and stop emotion getting the better of you.
If you’d like to learn more about how to perform well at auctions or clarify your investment strategy and goals, why not complete our Getting Started form to get the ball rolling.
Or, if you’re ready to invest in Perth’s property market, why not download our free Get Ready to Invest in Property eBook here.
It takes you through five simple steps to help you understand strategic property investment and how to make it work for you.
You will learn how to:
- CREATE YOUR WEALTH PLAN & INVESTMENT STRATEGY
- ASSESS YOUR FINANCIAL POSITION & FIND THE RIGHT LOAN
- RESEARCH THE MARKET & CREATE A SHORTLIST
- MINIMISE RISK & CONDUCT DUE DILIGENCE
- ADD VALUE TO INCREASE RETURNS
It will then give you a few insights into GETTING STARTED.
So if you’re ready to learn some great insights into getting started in property investment, download your free Get Ready to Invest in Property eBook here.