Puzzle Finance Blog

Hammer out the best deal

Play your cards right and you can make the often-daunting auction process work for you.

Like it or not, if you are looking for a property this spring, especially one in the inner-ring suburbs, there is a good chance you'll have to buy it at auction. This method of selling is becoming more popular in Sydney, figures from the Fairfax-owned Australian Property Monitors show. In the past financial year, about one in seven properties was sold this way, compared with one in 10 in 2006.

And auction clearance rates, which have been more than 60 per cent for the past seven weeks, are the highest they've been for the past two years, APM figures show.

Buyer's agent and the managing director of PK Property, Peter Kelaher, has bid at many auctions and says most bidders he sees know little about the process and are ''lambs to the slaughter'' with selling agents and auctioneers, all of whom are working for the seller and experienced at getting the highest possible price for their property.

''It's a more transparent way to buy [than other methods], but it still comes with tricks and traps,'' he says.

Chief among these is knowing when to start bidding, and when to stop. Kelaher recommends buyers do not bid until there are others doing so, and says never bid against yourself - a situation that can happen if a vendor's bid has been placed after yours, and then you are asked to bid again. In this instance, Kelaher says bidders should resist offering more until there are other bids and, if there are no other bids, to wait until the property is passed in.

''In the majority of cases when a property gets passed in, it brings the reserve price down,'' he says.

However, an auctioneer and a director of Richardson and Wrench, Peter Baldwin, says the reverse can also happen and the seller can put the price up if a property is passed in, especially if there are several parties interested in negotiating. ''Once it becomes a post-auction negotiation, the agent is calling the shots,'' he says.

Another way auctioneers and selling agents encourage bidding is by announcing that the highest bidder will have the first ''right'' to negotiate with the vendor if a property is passed in, Kelaher says. ''But the fact is, the vendor will speak to the person who has the most money,'' he says.

Another buyer's agent, Dennis Kalofonos, the principal of Sydney Property Finders, says he always tries to be the highest bidder in these situations, because ''nine times out of 10 most agents will only focus on the highest bidder.''

But when it comes to knowing when to stop bidding, Kalofonos and Kelaher agree that buyers have to have a limit in mind before they start - and they have to stick to it.

How to bid and how much to bid depends on the other bidders. Kalofonos says his opening bid is often triple the amount of the previous bids, ''to show we're here to buy''.

However, both buyer's agents say all bids should be made quickly, confidently and with no outward signs that bidders are approaching their limit, such as shaking their head. Because of this, they recommend standing at the back so they can see their competition.

Baldwin believes there is no science to bidding and when buyers are ''too tricky'' in trying to outsmart the auctioneer it often works against them. Sometimes, if they hang back from bidding, they miss out altogether, while other times this will antagonise the vendor, who might decide not to negotiate with them afterwards. ''I take the view that the silliest approach is to not bid at all,'' he says.

Winning ways
  • Bid in the dollar denominations you want to bid in, not what the auctioneer is demanding.
  • It is purely a courtesy that the highest bidder gets first right to negotiate should the property be passed in.
  • Put in a really low bid the day before the auction to coax the vendor to set a lower reserve.
  • Position yourself where you can see the other bidders' expressions; they may indicate when they are reaching their limit.
  • Stick to your limit, and don't get emotionally involved.

  • Auction clearance rate = Sales divided by (reported auctions plus withdrawals).

Posted by Antony Lawes - Domain (Fairfax Digital) on 10th November, 2012 | Comments | Trackbacks

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