How to win your next property auction

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Every weekend in suburbs around the country, prospective buyers, neighbours and stickybeaks converge on front lawns or footpaths to take part in what is, in essence, a form of local theatre: a real estate auction.

For sellers, the emotion and competition generated at a public auction has the potential to drive up the price they'll ultimately get for their property. If things go well, that is.

For buyers, on the other hand, there's always the possibility they could snag a home for a decent price.

how to win your next property auction

The auction process can be stressful, particularly for buyers who don't have anyone to guide them through it.

So, what should would-be buyers expect to face and what strategies can they use to win a property auction?

Why are property auctions more popular in some states?

Before getting into the process, it's worth highlighting that auctions aren't uniformly popular in all parts of the country - a fact that may come as a surprise to those in NSW and Victoria.

"The variation ranges from as much as 50% of listings across Sydney and Melbourne to much smaller auction markets in Perth, Adelaide and Brisbane," says Eliza Owen, head of research at property data firm CoreLogic.

"There's a little bit of research around why different markets have these different methods of sale, which actually points to it stemming from the agricultural history of Victoria and NSW."

Overall, roughly a third of homes taken to market each year are via auction, according to CoreLogic data. Owen says there's a strong correlation between capital growth and the auction clearance rate - the hotter the market, the higher the auction numbers.

"Broadly speaking, the auction method becomes more popular when property markets are performing strongly and housing is in high demand.

"In line with that, we saw a real uptick in the portion of properties going for auction across smaller, non-traditional auction markets through the pandemic. Particularly in Adelaide and Brisbane, where the portion of auctions peaked in that 2021-22 period when market conditions were very strong."

How are auctions different to other property sales?

As CoreLogic's data suggests, not all property owners sell their homes via auction. There are a range of other methods, such as private treaty, tender or an expression of interest, that have varying degrees of popularity across different markets.

From a buyer's perspective, there are a couple of parts of the auction process that differ significantly from some other methods.

Perhaps the biggest is that there's no cooling-off period.

The cooling-off period typically gives buyers between two and five business days to walk away from the deal (there may be fees involved). But with auctions, once the winning auction bid has been accepted and the documents signed, that's it.

The second major difference is that buyers will literally be standing shoulder to shoulder with their competition at an auction.

This is one of the reasons why selling agents encourage their vendors to go down the auction path if the conditions are right, because the combination of in-person competition and high-stakes emotion involved can easily create a bidding war.

Peter Florentzos, a partner and agent at LJ Hooker Property Partners in Brisbane, takes all his properties to auction for this reason. But broadly, he believes that auctions in a public setting provide one major benefit for both buyers and sellers.

"I really think that auctions are actually one of the fairest ways of buying anything, let alone real estate, because you can see what's going on. They're open and transparent.

"Buyers can actually see what everyone's doing, the sellers can see what the buyers are doing and if the seller's expectations are a little bit too high, well, they can see that demand."

How should you prepare for a property auction?

While an auction can be thought of as a grand final of sorts, there's plenty of legwork that buyers will need to do in the lead-up to the big day.

Before buyers begin their property search in earnest, it may be worth sorting out their finance.

For most people this will involve contacting their lender or a mortgage broker to work out how much they want to borrow, how much they can afford to borrow and then begin the process towards pre-approval.

Conditional or pre-approval means that a lender has agreed to lend a specific amount of money for the purchase of a property but hasn't given the final thumbs-up.

Buyers with pre-approval can then start looking at homes with a certain degree of confidence and backing from their lender.

So, once a buyer has secured pre-approval and identified a property that they like, what can they do before the auction takes place?

"There's a lot of work you have to do before it comes to auction day," says Michelle May, principal buyers agent at Sydney-based Michelle May Buyers Agents.

"You'll need to have reviewed the contract, the strata report, the building report - all that kind of stuff."

While it differs from State to Territory, buyers will often need to organise and pay for their own building reports and other inspections (for example, NSW), whereas in some areas (such as the ACT) building and pest reports will be supplied by the seller.

At this point, buyers may also want to engage a solicitor or conveyancer to obtain pre-auction advice on the sale contract. Again, it differs from firm to firm, but many conveyancers offer free, limited pre-auction advice, with the payment and additional work coming after a purchase.

May also suggests that prospective buyers take the time to attend a few other auctions in the lead-up to their own to get a sense of the process and terminology.

Then there's the deposit. Should you win at auction you'll generally need to pay a 5% or 10% deposit, so in addition to having that money ready to go in your account, it may also be worth checking with the selling agent to confirm the preferred payment method.

The bulk of the money will typically need to be paid via cheque, a bank transfer or DEFT (an online transfer method), but some agents may also require a small amount of cash as a holding deposit.

Should you make a pre-auction offer?

If you really like a property and want to see if you can secure it before it goes to auction, is it worth testing the waters by making an offer?

May says there's often a misconception that there's no option to buy beforehand if an auction campaign is being run, but that's not the case.

What she does recommend, though, is that buyers get themselves organised and ready to act after the second weekend of opens.

"Some agents love doing deals, so you need to make sure that you're always ready, but other agents just run everything to auction, no matter the property, no matter the market.

"Another thing to note is that if an agent and vendor are open to selling prior to auction, that decision is usually made after the second Saturday.

"In NSW, an auction campaign usually runs for four weeks with the auction on the fourth Saturday, so the feedback and the decision on price and where they're going to go with the campaign is usually made after that second Saturday."

What happens on auction day?

The big day has arrived. For most buyers, especially auction first timers, this will be when the nerves start to kick in.

As someone who has gone to hundreds, if not thousands, of auctions in her time, May stresses that preparation and confidence are key.

Many homes going to auction will have a final inspection before the auction, so May suggests getting there early and registering with time to spare to gauge the competition.

"Find a spot where you can watch the registration table and then, when the auction starts, position yourself where you can see everyone and everyone can see you. Don't hide - be front and centre."

What's the best strategy to win a property auction?

Then comes the bidding. While it might be tempting to sit back and let the competition show their cards first, Florentzos suggests opening the bidding.

"A lot of times buyers want to hold back and the auctioneer will ask for an opening bid and everyone will stand there with their arms crossed because they're waiting for someone else to make a move. But I just say to buyers, bid and bid with confidence."

May is also a proponent of opening the bidding, though in terms of the bids themselves, she has a particular technique that she likes to employ.

"People like bidding in $5000, $10,000 and $25,000 increments, which makes it obvious when they're getting closer to their limit because their increments get smaller. So, I always bid in odd numbers. Not only does that put people off, but it also destabilises the rhythm of the auctioneer.

"So, after your first bid, maybe you add $13,000, then $3000, then $18,000, then $7000 - vary it up. If you can knock somebody out with a confident $18,000 increase as opposed to increasing it by $1000 each bid, it's much harder for people to come back from that."

As the auction unfolds, there are two important components that may come into play.

The first of these is a vendor bid, which can be made by the auctioneer on behalf of the vendor to encourage further bidding if the reserve price hasn't been met.

The other is the reserve price, which is the minimum amount a seller would take for the property.

If that isn't reached, the property will be passed in, but if it is reached the auctioneer - after consulting the vendor - may announce that the property is 'on the market' and will be sold.

What happens after the auction?

Depending on how the auction plays out, a buyer could end up placing the winning bid, negotiating with the seller if they had the highest bid before the property is passed in, or missing out entirely.

If the hammer comes down after a winning bid is made or the negotiations prove successful, contracts are typically signed immediately afterwards and the deposit arrangements made.

For successful buyers at auction in the ACT, South Australia and Tasmania, the next move may be organising building insurance, as buyers become liable for damage to the property after the contracts have been signed. In other parts of the country, liability doesn't kick in until after the settlement period.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.