Firstly, make sure you understand your borrowing capacity and have your loan pre-approval in place. Next, do your research on the value of the property you’re interested in. Talk to the agent and find out what other properties have sold in the area recently.
If you wish to have an independent valuer look at the property, ensure to choose a valuer who understands the local market well. I missed out on a great property in St Ives, because I took the advice of a valuer who didn’t understand the St Ives market very well. He pointed out that the property last sold for $400,000 not so long ago and now had an asking price in the $800,000s – which didn’t add up. I later learned that the previous sale price was a result of a divorce, with one spouse selling their half of the property to the other – i.e. the sale price only reflected half the property’s total value.
Before you go to the auction, you need to first be very clear in your mind that you want that property. Ask yourself: “Do I really want this property?” If the answer is yes, then arrive at the auction determined to win.
This sounds really simple, but many people don’t do this. They turn up feeling not quite sure about if they really want it, or lacking confidence that they will be able to win. And if you keep losing at auctions than it starts to further impact your confidence and you lose momentum. Be determined to succeed from the outset.
You also need to position yourself financially. When I set a budget for an upcoming auction, I usually set two budgets: the first is how much I’m willing to spend – my ideal budget. The second budget is the maximum amount I can afford or am willing to pay if the bidding goes beyond my ‘ideal budget’.
It’s worth noting that more properties tend to sell at auction (as opposed to the private treaty) in a rising or hot market. In this type of market, expectations of sellers and agents are high, and auctions can help get the vendor the top price – playing off the emotions of the buyer within the energy of an auction. This makes it pretty hard to get a ‘bargain’ at an auction – it’s usually only likely with a mortgagee sale or with a highly motivated seller for example, due to divorce or who has already purchased elsewhere. Accordingly, you will likely need to forget about trying to get the property cheaply – and instead, raise your ideal budget.
Remember, if you miss out, that means even more months spent looking and bidding on houses – as well as the potential lost opportunity cost. In my experience, the property is a relatively forgiving asset – if you hold it long enough it doesn’t matter if you pay a little more.
