Bidding at an auction in a HOT market

Hi All,

As the title suggests, what would be your suggestions on bidding in a hot market.

We are looking at a property that's on auction and is likely to get a lot of interest due to the local school, proximity to trains, shops etc. To add, the house is in knockdown condition on a corner lot. We can put a double story house and a granny flat (with it's own street frontage). Total costs including purchase are around $950k-$1m (generous budget, assuming purchase is around $550k). However, we expect the end value to be around $1.1m - 1.2m. So naturally, there would be various interested parties. We aren't so emotional, but given the location, the numbers stacking up, we'd like to acquire it.

We attended an auction in August, for a 2 year old house, where the first bid was $830k (in an area where the average price was $550k not long ago). The bidders thought they would have it in the bag, but that was their first and last bid with the property selling at a record $890k.

So clearly, if we think we have a budget $x, there could be someone with a budget say $x+more. We can't control what others are willing to spend, but we want to be managing our max effectively as we do see value in the purchase.

So what would be your bidding strategy? I have seen people not bid till the end. But another one is being aggressive.

Appreciate your input.

Thanks,
MsAli
 
MsAli,

I know you said your figures were quite generous but I would be hesitant to go in with such a skinny margin if you aren't super sure of your figures. Anything unknown could blow that 100k out to nothing.

As to auctions I have only bid at one and I did the agressive thing but I think now that the quiet thing also works. Its good to watch the other bidders and if you don't bid then the price might not go as high. So I would be quiet then wait until it peters out then if it's still under my budget put in a nice strong bid.
 
The thing I hate about coming in early is that the pressure is on you. The auctioneer keeps asking you for a bid.

I prefer to sit back and watch. If it slows down and is at my price I'll bid.
 
I bought a couple of properties in a hot market back in 2001 and 2002. I waited till the back end of the process (no point driving the price up myself with my own early bids) - when I did bid, I did so very confidently (over exuberantly) in odd increments to put the other buyers off. I wore a dark suit and slightly dark spectacles. I tried to give the impression that I could go on bidding forever - but had a very firm budget that I never went over. When the agents approached me to bid higher (against myself as the property was "not yet on the market"), I just ignored them, waned indifference, and kept reading my magazine, waiting for the auctioneer to make a decision. It worked for me both times.

The biggest risk in an auction is getting carried away and going over your pre set budget. Never do that. If there is any risk then get a professional to bid for you.
 
How about Do what professional investors do???
Invest in market that aren't hot

I'm sure I'm not the only one but buying and competing agaagainst amateur investors and firs. Home owners buyers is the easiest way to lose money on the Property market

My. 2c
 
There are lots and lots of strategies. Nothing works 100% of the time - except if you keep bidding till the end - then you will be the successful purchaser :p

We bid at lots and lots of auctions on behalf of clients - and we can open, and finish and win, or keep quiet till the end and win, BUT at the end of the day, strategy means nothing if you are bidding against someone else who is prepared to pay more money than you.
 
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Thanks for the suggestions guys. Yep it's for PPOR.

I'm kinda getting drawn to keeping quiet till the end.

It doesn't help, one of my work colleagues saw me on RE yesterday and pinged me today to tell me we might be going head to head!!! He said he wasn't sure and will decide Friday night or Saturday night. Isnt' that a bit last minute?? His parents live up the road so he obviously knows the area.

I asked him what he thought it would sell for. He said 500k as people in that area can go a bit "crazy". I flagged to add another 100k in this market. I said this to him before he said we might be head to head!

We got a val done as well today, ordered by our broker, for a different lender to get an indication. I then called the agent who told me there are 8-9 people interested. The agent said to the valuer the property means different things to different people - so there would be 3 types of buyers: 1) investors to rent the house and "sleep out"/garage 2) knock down build a new house 3) knock down and build a duplex (strata title??). So it comes down to the different bottom lines.

If it's bought for a duplex development then I won't be surprised it sells for 650k-700k.

Agent thinks it would sell between $450k-550k and he said he didn't like his chances for it going over 550k. But I still think there is room to move.........

We'd like to win it of course..........given there is a colleague there too, I'd like to keep quite till the end :eek: Don't want to get caught off guard.
 
Thanks Guys. Its a deceased estate and the agent said they aren't taking any offers. I don't want to reveal my max by putting the best offer so will go to auction.

Mystery, why do you love auctions? I get nervous. I liked one auctioneer in mount druitt though. He's in his 70s....auction was so simple there
 
Thanks Guys. Its a deceased estate and the agent said they aren't taking any offers. I don't want to reveal my max by putting the best offer so will go to auction.

I'm not a lawyer but I'm pretty sure they have to take an offer to the vendors if you put in a formal offer, they tell you they're not accepting offers because they prefer it to go to auction.

I've purchased at 2 auctions and my tactic has always been to come in as late as possible but that's mainly because auctions are quite nerve-racking (but also exhilarating) so I don't want to be bidding for 10 minutes.

My only advice is to bid confidently right to the end, I can't understand why people um and ah and whisper to their partner and then say "Ok, one more bid", why advertise to the rest of the auction that you're almost done?!
 
My only advice is to bid confidently right to the end, I can't understand why people um and ah and whisper to their partner and then say "Ok, one more bid", why advertise to the rest of the auction that you're almost done?!

Yes I agree. You see it all the time. At one auction I was bidding strongly. The agent said- "Oh she really wants it". Then I hit my ceiling and stopped dead. He was quite shocked. He asked if I wanted one more bid etc etc. I said no that's my limit. :p Another investor wanted it more.
 
A couple of general tips from me

1) Know the auctioneer, attend another of their auctions prior. So you can tell their style, how fast he knocks down properties etc. Good to build a relationship too.

2) I like to bid on the last (3rd) knock down, it can throw off other people who are waiting, nervous and have highest bid at that point.

3) Some people like to confirm that the property is on the market, so don't be afraid to ask the auctioneer that if it's not clear. Can also help to create a pause and slow things down.

4) Watch out for the bidders wearing tracksuits!
 
Most imporant rule is that you establish what it's worth and what you are prepared to pay. If it goes above that you walk away.

At auction you know your competitor's offer and you know when you've reached the vendor's price. You only have to go as little as $500 above whichever is the highest. We bought a house recently for $60k below what we were prepared to pay!

Generally don't bid until it's on the market and then only when it slows down. You can ask during the bidding if its on the market. IMO this indicates you are serious but waiting.

When you do bid confidence is the key. Not necessarily high bids. Don't hesitate, come straight back with the counter. I missed out on one when the bidding slowed to $1k increments. I came in with $5k, other bidder straight back with $1k. Band forth for 4 rounds , I got nervous and started talking to my partner, hesitating. The other bidder knew I was nearing my limit he had the confidence despite lower bids. I was not disappointed I had not paid more than what I felt it was worth.

GOODLUCK!
 
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Thanks for the great advice guys!!! Very much appreciated!

smitr, why do you say watch out for people in track suits?

We got the vals back today at $530k. What if it goes for a higher price? Do the banks/valuers consider sale price at an auction as the market value? Obviously we'd find a way around getting a different valuer to value after the auction.

We would be waiting till the end.....I'm scared of auctions. But this time I will try to go in the face of it and try enjoy the process!
 
Hi Sana
I have always had someone purchase at auction on my behalf.

I hate auctions, you only need 2 competing players and this can easily drive the price through the roof.

I have also placed offers prior to auction, but in a hot market unless the offer is outstanding the seller will go to auction regardless.

All the best on the day, keep us all posted.

MTR:)
 
Thanks for the great advice guys!!! Very much appreciated!

smitr, why do you say watch out for people in track suits?

Perception. They sometimes have the deepest pockets. I don't like auctions these days although have purchased two at auction this year.

I enjoy looking as dishevelled as I can. Singlet, shorts, thongs and three day stubble. :D


We got the vals back today at $530k. What if it goes for a higher price? Do the banks/valuers consider sale price at an auction as the market value? Obviously we'd find a way around getting a different valuer to value after the auction.

We would be waiting till the end.....I'm scared of auctions. But this time I will try to go in the face of it and try enjoy the process!

You've had some good input above and the excellent post by simtr summarises my views. Don't be frightened by the suits. Sometimes they are BA's or just wishing to look as if they are able to afford it. It's all a game. Have your limit (even if it's a PPOR purchase) and stick to it.

Good luck :)
 
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