Whether you have ever bid at an auction or not, it is undeniable that auctions stir up a range of emotions. Let’s be honest, bidding is basically like a game of tennis – there are competitors, spectators, an umpire and eventually a winner and a loser.
Understanding how the auction process works can assist in keeping your emotions at bay and help you to bid strategically rather than emotionally.
So how does an auction work?
When you register to bid, you must adhere to the rules of the auction. These rules will be provided to you during the registration process. While the rules are generally the same across agents, auctioneers have different ways of conducting auctions.
Ultimately, auctioneers are employed to achieve the best price for the vendor.
On the day of the auction, the auctioneer can set the amount by which bids increase, called rises or bidding advances. You don’t have to stick to the bidding advances set by the auctioneer, for example, bid in reduced increments of $5k instead of the desired $10k increments. Just be mindful that they can choose to accept or reject your offer.
Auctioneers thrive on momentum, not only will they have already gaged your bidding range prior to the auction, they will use a range of tactics which plays on your emotions and leaves you in a spin within a matter of minutes because the property you thought was in your price range has quickly escalated into a price range that you can only dream of.
To stay cool, calm and collected on auction day, there are strategies you can employ to slow the momentum and steady the decision making:
- Bid confidently and be clear about your bidding limit. You should have set a limit of how much you are willing to spend before the auction. Stick to it.
- Bid in odd increments and call out the increment you would like to bid in, not the number you want to land on. For example, if the price is $635K and you decide to bid an additional $13.5K, call out $13.5K instead of saying $648,500, this will then require the auctioneer to think about it and add it up in their head. This tactic isn’t just about slowing down the auctioneer, it also throws other buyers off, who more often than not have a round number in their head.
- Every auction is different, you must adjust your strategy according to the number of bidders present at the auction. If there are a lot of competitors that you are going up against, a more aggressive strategy is the way to approach the bidding. Starting with a high bid to begin with, shows that you are confident and going to bid hard against the competitors. Whereas, if there are a small number of bidders, it is better to play your cards closer to your chest. To begin with, sit back and see how the bidding is playing out, you may be able to secure the house at a lower price than anticipated.
- Watch for body language. Competitive bidding isn’t just about how you present yourself, it is just as important to keep an eye on your competitors and the auctioneer. Stand in a prominent position and away from competition so that you can view their reactions. It is also worthwhile going to an auction run by the same auctioneer to research their auction day strategies. This tactic will give you the upper hand in having prior knowledge of how the auctioneer responds to different scenarios and if there is anything that may be of note.
What is a vendor bid?
During the auction, the auctioneer may place a vendor bid. A vendor bid must be declared by the auctioneer. It gives an indication that the vendor is not satisfied with the price reached at that point of the auction.
If the bidding has reached or is close to the reserve price – the figure at which the vendor has previously agreed they will sell – the auctioneer will confirm with the seller that they will sell at the highest bid.
If they agree, the auctioneer will say the property is on the market. Bidding will continue and the property will be sold to the highest bidder.
Don’t pass out if it passes in
The auctioneer will seek bids until they meet the seller’s reserve. If they don’t, the property is likely to be passed in. The highest bidder then gets first right to negotiate with the seller in an effort to achieve a sale.
There are important differences between buying a house at auction and by private sale.
If you buy at auction, you don’t get a cooling-off period if you change your mind – and you can’t make the contract subject to any conditions.
This means that if you are planning to have a building or pest inspection, this needs to have been organised before the auction. Whereas, if you buy a property by private sale you are able to make the contract subject to conditions.
In a private sale, a cooling-off period of three business days applies from the date you sign the contract, unless this is within three days before or after a public auction.