Buying an Investment Property at Auction

When looking for a property to commence or add to your investment portfolio, are you put off by Auction properties?  What are the benefits and challenges? Certainly, compared to private treaty sales, you are bidding against other potential buyers, with the winner the highest bidder; this competitive environment sometimes creates fear in investors of overpaying.  How do you avoid this?  Below are some tips to help you navigate the auction process.

Firstly, do your research:  different states have different legislation around disclosing price range or reserve, for example, in Queensland, an agent is not allowed to provide a potential buyer with a price range.  However, by researching what similar properties within the area have recently sold for, you should be able to get a fairly good idea of what the market will be willing to pay.

Also, the Agent still has to load the property on the real estate portals under a certain price range; so if you are searching for properties within a certain range and an Auction property comes up – this is also an indication of where Agent is expecting it will sit.

Secondly, ensure your finance is pre-approved: you need to be in a position to bid on a property you are interested in at Auction, and as the contract will be unconditional, it is critical you have pre-approval by your financial institution.  Stick to your limit, do not get carried away in the moment and create a potential problem for yourself.

Thirdly, ensure prior to bidding that you have done your due diligence with regard to this particular property; for example, carefully perused the building and pest report, and have your lawyer look over the contract prior.

Finally, when it comes time to bid, some general advice includes:

  • Don’t offer a bid initially – watch other bidders and attempt to work out their intentions.
  • Don’t bid until reserve is met – until the reserve is met, the property isn’t technically ‘on the market’, this tactic also helps you keep your cards closer to your chest.
  • Stay unemotional – give nothing away to the Auctioneer, agent, or other bidders. Poker face all the way!
  • Bluff bidding – this can work in certain circumstances to put off other less confident bidders. Bid small amounts early on, then wait for other bidders to reach their limit, before placing a strong confident bid with a bigger price increase than auctioneer has requested (which is within your limit).

It is also worth submitting a pre-auction offer if you are really interested in securing the property, as a good offer may tempt the vendor to sell early, and you get to knock out the competition before it even starts. Owners who choose to sell at auction are generally motivated to sell quickly and may well agree to an offer beforehand to avoid some of the significant expenses associated with marketing, promoting, and conducting the auction sale.

Also, if the property is ‘passed in’ at Auction because the reserve price is not reached, the seller will then either try and negotiate a price with interested bidders or put the property back on the market. This is generally an opportune time to negotiate strongly as the power has shifted to you as the buyer.