What would you do if you were the only person at an auction?

[Sunder]

I am going to an auction this weekend.

There are three properties for sale in this block of units. Two are listed for $185-190k, but both are renovated.

This one isn't renovated, and is up for auction instead of sale.

The last auction I went to, there was a long silence where nobody would bid, before I put in a fairly low number. Another person was interested, and he outbid me, which I was happy to let him have.

If I'm the only bidder, what do you think should I do? Offer something way below what I think it's worth, and pressure them to reveal the reserve/vendor bid?

Go in at what I think is a fair price?

Personally, I value this unrenovated place to be worth about 150-160, so I'm thinking of going in at 130k, and if there's another person, stop bidding at 145. If there's nobody there, just shut up and negotiate directly with the agent after auction?

 

[ianvestor]

If noone else is saying anything, why open your mouth at 130? Why not start at 100 or so?

 

[Sunder]

If noone else is saying anything, why open your mouth at 130? Why not start at 100 or so?

That's what I'm uncertain about.

If the reserve is something like $170, the vendor might want to negotiate from $130.

If I go in at $100, even though I might be willing to pay up to $145, he might not be amenable to negotiating.

 

[Jon Chown]

A good Auctioneer will not take a lowball bid but will start the Auction with a Vendor Bid.

If you are the only person at the auction (doubtful) then the Agent has not done their job and in this situation, I would not show my hand. I would wait till the property was passed in and discuss with the Agent what the listed price will be. Then make your offer. I must say that from an Agents perspective, I don't have a lot of time for lowball bidders and my usual response would be. 'My Vendor tells me to thank you for your offer but unfortunately it is too low. The listed price is 'X', if you would like to make a higher offer, I would be happy to submit it to my Vendor.'

But hey, that's just me. By law, I must take all offers to the Seller, the final decision is up to them.

Jon

 

[Sunder]

A good Auctioneer will not take a lowball bid but will start the Auction with a Vendor Bid.

If you are the only person at the auction (doubtful) then the Agent has not done their job and in this situation, I would not show my hand. I would wait till the property was passed in and discuss with the Agent what the listed price will be.

I don't think I'll be the only one at the auction, so much as the only one willing to bid. In the past few weeks, I've seen a fair few "No Bids" results in this area. In some ways I'm hoping this will be another.

Thank you for your advice, you are confirming what I am fearing - that a lowball bid, in the absence of any other bids, would deter a negotiation, rather than be a starting point to negotiate.

Any other comments from the buyer's side? (or any other REAs?)

 

[Jon Chown]

Sunder, One point that I didn't make is, what if there is one other bidder present? Are you aware the the last bidder has the right of first refusal if the property does not meet the reserve. The best advice that I can offer is to work out what you are prepared to pay for the property and be prepared to bid to that figure and NO MORE.

Jon

 

[RedPanda]

Let it pass-in and then negotiate

It depends on the kind of property also. If it's a property which ticks your boxes and you think it is quite a good buy or too-good to miss, I would let the property pass-in and then offer a price which is below the price which I think it's worth but high enough to demand vendor's consideration.

If it's just a property which is like many other properties in the market but you think it is good property based on your research or if you just want to buy in that suburb, I would try my luck with a much lower offer after letting the property pass-in.

I would avoid bidding at auction if I can because there is no cooling-off period in auctions or "Subject to ..." clauses as in some states.

Cheers.

 

[Sunder]

It depends on the kind of property also. If it's a property which ticks your boxes and you think it is quite a good buy or too-good to miss, I would let the property pass-in and then offer a price which is below the price which I think it's worth but high enough to demand vendor's consideration.

If it's just a property which is like many other properties in the market but you think it is good property based on your research or if you just want to buy in that suburb, I would try my luck with a much lower offer after letting the property pass-in.

I would avoid bidding at auction if I can because there is no cooling-off period in auctions or "Subject to ..." clauses as in some states.

Cheers.

I'm not desperate to get this property, because there are two others in the block with asking prices of around $190. Since one has been listed a while, I'm sure I could negotiate that down to 175, 180 maybe. I just think that since this is the unrenovated one, I could get a better price for it, and do the renovations myself.

Your point about cooling off is a good point. I hadn't thought about that. I can always use the excuse that if I'm to bid any higher, I will want to go through the whole gammut of building inspections, strata searches, etc, which will take time, which might make them decide they want a faster sale?

 

[travelbug]

Hi, If you think you can get the renovated one for $175. And you bid to $145 on the unrenovated one, that's only a difference of $30,000.

I hope there's not too much renovating as it wouldn't be worth it.
Time, materials.

 

[Xenia]

If I was the only one at an auction I would let it be passed in then negotiate with the vendor on non-auction terms!

 

[buckerooni]

If I was the only one at an auction I would let it be passed in then negotiate with the vendor on non-auction terms!

when you say 'non-auction terms' - you're talking about things like cooling off period/subject to.../settlement clauses etc?

 

[Sunder]

Update:

The place sold for $135k, which makes it solidly positively geared, even after agents fees, etc.

My research showed the place last sold in 2003 for $195,000 and this sale was a mortgagee in possession sale.

Unfortunately, I overshot the turn off, and couldn't register to bid after bidding started.

There will be others. One similar one sold the previous weekend for $140k, so it does look like property around this area is all getting positively geared

 

[Peter Parker]

I would avoid bidding at auction if I can because there is no cooling-off period in auctions or "Subject to ..." clauses as in some states.

But note that (at least in Victoria) if a property is advertised for auction, it's passed in and you then make a private offer within 3 days of the auction date then you're normally still buying according to auction conditions not private sale conditions. This includes losing cooling off and 'subject to' clauses.

To avoid this you need to wait longer but this increases the risk of someone else beating you to it.

 

[Nathan]

do you mind me asking what suburb your talking?

 

[Sunder]

do you mind me asking what suburb your talking?

Sure, Liverpool NSW.

It does mean I could be bidding against one of you in the near future, but hey, that's the market. Anyone doing their own research would find it sooner or later.

There are apartments there listed at high 100s low 200s, which have been listed a VERY long time.

Those two others in the same block listed at $185, $189, I'm going to send them a written offer for $135k, citing the $135 and $140 recent sales, and see if I can get it around the $140k ballpark.

 

[jingo]

Sure, Liverpool NSW.

It does mean I could be bidding against one of you in the near future, but hey, that's the market. Anyone doing their own research would find it sooner or later.

There are apartments there listed at high 100s low 200s, which have been listed a VERY long time.

Those two others in the same block listed at $185, $189, I'm going to send them a written offer for $135k, citing the $135 and $140 recent sales, and see if I can get it around the $140k ballpark.

Just a little curious. Is this a 1 or 2 bedroom apartment? It may be tempting to buy something on the cheaper side and achieve 'neutral' or 'positive' gearing. However something cheap may attract troublesome tenants.

Just a thought, but cheap can often mean trouble and although in theory or on paper your returns may seem to be neutral or positive, reality is often very different! It is often prudent to think about what type of tenant will be attracted to the property you buy. To my way of thinking an unrenovated apartment in a large apartment block may attract tenants who have trouble paying their rent. Unpaid rent and visits to the tribunal can quickly turn your neutral strategy into a negative one!

One other thought, why are so many people in the complex selling? Does the complex require extensive work soon to be undertaken by the body corporate?? That would certainly put a hole in your neutrally geared strategy.

A tip too, if it is a flat you are buying make sure that your unit has a separate water metre. Otherwise watercosts are shared between owners in the whole complex. If you rent out the unit you as the landlord will be required to pay for the tenant's water usage.

Regards Jason.

 

[FelixL]

Update:

The place sold for $135k, which makes it solidly positively geared, even after agents fees, etc.

How is this positively geared? I bought a similar property for $145 and rented out at $220 today and in a area where the median rent is slightly higher than liverpool. After all the fees (agent,council, strata,water), its quite a bit into the negative territory. A rent of $300 probably gets to neutral, which is quite impossible to achieve in Liverpool

Also, I've learnt the hidden troubles with investing in the not-so-good areas, you get more problematic tennants, unprofessional property managers and laughable strata management and council...

 

[Sunder]

One other thought, why are so many people in the complex selling? Does the complex require extensive work soon to be undertaken by the body corporate?? That would certainly put a hole in your neutrally geared strategy.

I'm about to do some strata searches on the other two unsold ones to find out. The other thing is, comparable properties in the area have sold for comparable prices, so I think it's more of a "mortgagee" issue, than a "maintenance" issue.

How is this positively geared? I bought a similar property for $145 and rented out at $220 today and in a area where the median rent is slightly higher than liverpool. After all the fees (agent,council, strata,water), its quite a bit into the negative territory.

I've seen worse apartments in Liverpool (from photos), lease for $250, and I heard someone there say that they expected this place to lease for about $235-$250, so I'm pretty sure those are good market figures.

Besides, I think I did say positive ex-agent fees etc. Or maybe I didn't... No, in fact I said quite the opposite. Never mind... my mistake. Rent of $220 would make it neutral without consideration of any agents fees, rates, insurance, etc. So $250 would be probably close to neutral if you had a good tenant.

 

[FelixL]

I am just speaking from my actual experience of owning a similar property in a similar area, things ain't as good as it looks on paper.

With the rent on the lower end, the fees makes up a much larger proportion of the figures. Eg. the water rates seems much bigger for a $200 p/w place than a $1000 p/w place, even if they are the same in dollor figures.

 

[JIT]

Just a thought, but cheap can often mean trouble and although in theory or on paper your returns may seem to be neutral or positive, reality is often very different! It is often prudent to think about what type of tenant will be attracted to the property you buy. To my way of thinking an unrenovated apartment in a large apartment block may attract tenants who have trouble paying their rent. Unpaid rent and visits to the tribunal can quickly turn your neutral strategy into a negative one!

Exactly!

People seem to think buying positive or neutral IP's straight up means it's less risky...but these properties are higher yielding for a reason!

For the higher yield, you take on a certain risk...the nature and extent of which is unfortunately hard to quantify.