Bidding at auction: Tips and tricks from a champion auctioneer
For the uninitiated, bidding at auction can be nerve-wracking. Here are some strategies from Aaron Davis of Harcourts, winner of the 2019 Real Estate Institute of New Zealand (REINZ) National Real Estate Auctioneering Championships, that could give you an edge over your competition.
Work out the number you’re prepared to go to but avoid round numbers.
Most buyers stop at round numbers like $550,000, so make yours $553,000. That little bit more can often make the difference between coming out on top or missing out on a property at auction.
When the auctioneer calls for opening bids, be confident and assertive.
Throw out an opening bid and when another buyer comes back with a counter bid, don’t be afraid to respond with your next bid quickly and decisively. This gives the impression that you’ve got the funds and that you’re there to buy the property no matter what, which can discourage other buyers.
Call out bids that are higher or lower than what the auctioneer is suggesting.
Don’t be afraid to mix up the increments and bid in unusual increments like 36 instead of the usual 5s and 10s. Double bidding on top of yourself, which is when you already hold the highest bid and then bid again, can also throw other buyers off.
Sit or stand in a location where you can observe the other buyers in the room.
You’ll pick up important visual cues; facial expressions, signals between partners, even body language can give you a good indication of when your competition has reached their limit.
Don’t wait for the trial close to make your next bid.
When the auctioneer calls once, twice, third and final call, it triggers someone to bid. The trick, says Aaron, is not to wait for the trial close but to keep on bidding in random increments to discourage other bidders. If you hit your ceiling, you’re done.
As a seller, the results you get on auction day will depend on many factors, including the skill of your auctioneer. “The quality of the auctioneering can have an enormous impact on the outcome of an auction,” says Harcourts Managing Director, Bryan Thomson, “so it’s a testament to the expertise of our auctioneers that they continue to win the top awards at the national championships year after year.”
The insiders guide to buying or selling Real Estate
Whether you love the thrill of an auction or your knees tremble at the thought, auctions have become the preferred method of selling property in most of the major centres across the country. For those who are new to the process, buying or selling at auction can appear daunting. Don’t be put off! There are many advantages, and a few tips and tricks, that you should know about before entering the auction room.
The advantages of auctions for the seller:
As a seller, an auction offers you the opportunity to achieve the best price in the marketplace in the shortest possible time. Here are some of the many reasons why selling at auction has become so popular:
- Marketing without a fixed price increases the number of cash-in-hand buyers who will look at your property.
- Buyers come to an auction with their maximum price in mind as opposed to focussing on how low they can negotiate the price down to.
- Auctions allow buyers to determine the value of the property rather than relying on a sales consultant or a valuer, which can potentially result in a price that is too low and leaves money on the table, or too high and the property remains on the market for an extended period of time.
- Auctions attract the best buyers in the market, the ones that are cashed up and ready to purchase on the day without imposing any conditions on the seller. A third of all conditional contracts fail to result in a sale which can be discouraging.
- Conditional buyers are not excluded from auction. If the seller doesn’t get a suitable figure at auction, there is still the opportunity to have a conversation with conditional buyers afterwards.
What to expect when you sell at auction
Your sales consultant will guide you through the pre-auction and auction process which should include:
- Informing you about what is happening in the market, specifically around your area and in regard to properties that are similar to yours.
- Taking you through every element of the marketing plan, from the images and text for the advertising through to the scheduling of open homes.
- Keeping you informed with daily updates and weekly face-to-face meetings.
- Providing you with a written report on the marketing campaign and interest from prospective buyers.
- Helping you set a realistic reserve price.
Remember, you’re in control as the seller. You set the reserve. If bidding does not meet the reserve, you can decide if you want to enter negotiations.
Getting prepared to buy at auction
A common perception is that auctions are good for sellers, not buyers, but this is not the case. As a buyer, you know exactly who your competition is and the negotiations are out in the open for everyone to see. If your bid is successful, the contract is signed then and there, and property is yours with no further negotiations.
To make the auction process work for you, it’s important to arrive with your homework done. Here are some suggestions on how to prepare to buy at auction:
- Have your finances organised prior to the auction date so you know exactly what you can afford to bid. If you’re successful on the day, you’ll be asked to sign the sales agreement and pay a deposit, which is typically 10% of the purchase price.
- Organise a building inspection of the property you’re bidding on and have your solicitor review the property title and all legal matters related to the prospective purchase.• Review the auction documents beforehand.
- Research the local market so you can accurately assess the market value of the property. You may also wish to obtain an independent property valuation.
- If you’re new to the auction process, attend a few auctions to see what goes on before attending the one for the property you’re interested in
A buyer can submit a pre-auction offer to the property owner for their consideration. If they are willing to accept the offer, the auction date may be brought forward.
It’s important to let the sales consultant know you are interested in the property so if another purchaser submits a pre-auction offer and the auction is moved forward, you’ll be contacted. The reserve is set at the offer figure and the auction starts with that as the opening bid.
If no higher bids are received, the property is sold at the offered price, but if other buyers bid, the property will be sold to the highest bidder.
Regardless of whether you’re a buyer or seller, the more research and preparation you do prior to auction, the more likely you are to put your best foot forward on auction day
Building wealth through property investment
Owning property is an excellent way to build wealth. Historically, property has been a less volatile investment with real estate values invariably tracking upwards over time. What’s more, you have the added benefit of being able to “leverage” your existing real estate investment to buy an investment property using borrowed money and grow your property portfolio even further.
Using equity to grow your investment portfolio
How much equity do you have in your home or investment property? Enough to fund your next property purchase and grow your investment portfolio?
If you’ve owned your property for some time and provided you have the means to service a mortgage, you may be able to access the equity in your property to fund the purchase of your next property. Equity is the difference between your property’s value and the amount you still owe on your mortgage. It’s essentially the bit you “own” of the property and it can be used as a deposit to buy another property.
If you’re buying a residential investment property or you’re using a residential investment property you already own as security for a new loan, you’ll generally need at least a 30 per cent deposit. Instead of having to save up the cash for the deposit though, you could use the equity in your existing property to purchase another property.
Calculating the equity in your property
To calculate how much equity you have, you’ll need to know the market value of your property. You can use the valuation on QV or get a registered valuation of the property to determine its market value. You’ll also need to know how much you still owe on any lending secured by the property, which you can obtain from your lender.
Lenders will determine how much you are able to borrow by looking at a combination of your equity and income. Different lenders will have different lending policies and the combination of equity and income may vary from lender to lender.
Your potential rental income from the investment property you’re planning to buy will be included in the lender’s servicing calculations when determining your borrowing capacity. Contact a Harcourts’ Property Manager to arrange a rental appraisal to help you determine the likely rental income from the property.
You’re required to have at least 20 per cent of equity in your existing property after new lending is taken out if you’re using the equity in your family home, or 30 per cent equity if using your existing investment property. That means you could borrow up to 80 per cent of the value of your family home and 70 per cent on any investment properties you own, based on current loan to value restrictions.
If you’d like to find out more about accessing the equity in your property and unlocking your opportunities to grow wealth through property investment, contact Mortgage Express and one of our advisers will get back to you within 24 hours. A Disclosure Statement is available on request and is free of charge.
Investing in Property in 3 Simple Steps
If you already own a property, you may be able to use the equity in that property to kick start your investment property portfolio. As a first-home buyer, you’ll need to have a deposit, the amount of which will vary between lenders. Your mortgage adviser will help you determine which lender best fits your situation, working from a panel of lenders, and can help you get pre-approval so you know how much you could borrow.
2. Determine Your Goals and Strategy
Decide on your goals for investing in property and the strategies to get you there. To help you get started, think about:
• Why you’re investing in property – to generate income, build wealth or to save for retirement.
• What your time frame is – how long until you retire, how long you plan to hold onto a property before selling.
• The type of investment property you could buy in order to reach your goals – a smaller rental in a cheaper area versus a modern apartment close to the CBD.
The investment strategy you choose will depend on factors like your age and how close to retirement you are. If you still have 20 years to go until retirement, you’ll likely be looking for capital gain to grow your investment substantially. If you’re close to retirement, you’ll probably choose a strategy that will provide a solid cash flow that you can comfortably live on during retirement.
3. Research the Property Market
Once you have a clearer idea of your goals and investment strategy, it’s time to research the market to find the right property to match. For each property you’re considering, take a look at:
• How long it’s been on the market.
• Any changes to the advertised price since it was listed.
• The sales history.
• Median sale price and historical capital growth rates for the area.
• What price comparable properties are selling and renting for.
Also consider the costs associated with maintaining and possibly renovating the investment property and the likely rental income you could achieve as these will all be determining factors in your property choice.
Investing in property needn’t be a complex process. At every step of the way, our mortgage advisers are available to guide you and assist you to ensure you understand the processes and requirements needed for you to reach your property investment goals.
If you’d like to talk to one our mortgage advisers about your property investment goals and how to achieve these, simply get in touch and we’ll have someone call you back.