Navigating Auctions with Confidence: A Guide for HomeBuyers in NSW

Like a kangaroo caught in the headlights of an oncoming car, many auction attendees experience a feeling of paralysis and are often caught off guard by auction proceedings.
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In this fortnight’s MCS Buyers Newsletter, we explore ways of mitigating auction paralysis to ensure you navigate the experience from a position of confidence and knowledge.

The first piece of advice may sound like it comes from a position of self-promotion, but in fact, it is genuine sound advice. If you don’t feel confident bidding at auction, then please don’t put yourself in that position. As a buyers’ agent, we offer an auction bidding service that includes establishing the property value through recent comparative sales and creating a solid strategy before bidding on your behalf on auction day. Keep this professional service in mind if you find yourself reluctantly confronted with an auction purchase.

If you intend to bid on auction day, it is paramount that you have completed all the essential steps and due diligence prior to attending. Let’s now look at the process.

AN AUCTION WINNING BID IS FINAL AND FOR THIS REASON, ANY PERSON BIDDING ON A PROPERTY AT AUCTION MUST HAVE FIRST CONDUCTED ALL NECESSARY DUE DILIGENCE PRIOR TO BIDDING. YOU WILL NOT GET ANOTHER CHANCE; THE WINNING BIDDER WILL OWN THE PROPERTY AS IS.

Step 1: Ensure you have unconditional approval from your Mortgage Broker or Bank listing the level of funding approved before participating in any property purchase negotiations, whether Auction or Private Treaty sale. Allow up to six weeks to work through the borrowing application process before receiving finance approval, and be aware that mortgage approval normally lasts only three months. Important: check this with your lender and keep a close eye on the timeline. Keep your lender in the loop when you start to focus on an auction property and ensure they are aware of your purchase intentions a few days before attending the auction.

Step 2: Attend a property viewing in person or have someone with property experience do this on your behalf. Primarily, this is to understand the nature of the property, floor plan, general building condition, and most importantly, the environment in which the home sits. It’s not uncommon to encounter air and road traffic noise, a less-than-desirable streetscape, or large-scale development nearby, or in the path of a property outlook. Real Estate Agency photos will never give you the full picture and cannot convey the audible landscape.

Step 3: Speak with the real estate agent and ask for the guide price for the property. Once given the guide price, ask the Real Estate agent if they can provide recent sales in the complex/street or suburb. If they don’t have the data on hand, leave your email address and ask the agent to send them to you. There is nothing wrong with showing a little interest, especially if the questions are of a business nature. Try not to divulge much about your personal situation or show any emotional response to the property; this information should always be kept to yourself as it could weaken your negotiating strength further down the track. Keep all conversations business-oriented. You may also use this opportunity to request a copy of the sales contract.

Step 4: Once back at home, put together a file on the property, take notes from the viewing, and conduct a little research of your own. Establish the value of the property by viewing comparable sold properties in the immediate area. Input the address into the banking apps that offer home valuation searches, using as many different apps as you can to build a cross-section of averages. Now compare your searched data with the Real Estate Agency Guide Price for the property. You should now have a clearer picture of how the Real Estate Agency Guide Price compares with the recently sold properties in the surrounding suburb. From all of this data, set your buy price range and limits, write down your comfortable bidding range; this will form the basis of your bidding strategy and ensures you buy within the market price for the area in which you have searched.

Step 5: You’ve decided to attend the auction and have established your budget parameters. Now the due diligence stage must begin. Fully review the sales contract and forward the file to your solicitor for their input. Always read the contract yourself to get a feel for the conditions of sale, as these may need to be negotiated and changed before auction day.

Step 6: If the property you’re looking at is part of a strata complex (Apartment, Townhouse, Villa, Duplex, etc.), it is absolutely paramount that you gain a copy of the complete historical strata report to establish the history of past works, potential future works, financial position of the building’s works fund (sinking fund), and any potential disputes or claims that may be in progress. Again, it is very important to read the document to familiarize yourself, as you will also need to forward this to your solicitor for them to check and then brief you on the content.

Step 7: Building and Pest report. Essential for a free-standing building to ensure the structural condition of the building. This report may expose remediation works that could form part of your condition of sale clauses added to a sale contract before auction or final price negotiations if sold before the auction. It is strongly suggested that you do a property search with the local council to ensure there’s no new essential infrastructure that may affect the property. If you intend to knock down and rebuild or perform major renovations, checking the zoning, floor space ratios, heritage, and height restrictions should be investigated to ensure you can fulfil your ambitions. It may be worthy of having this conversation with a town planner active in the area you look to buy. It’s also important to use this time to bring through a builder or engineer if you’re considering major remodelling and renovation works.

Step 8: Understand the Auction rules (Browser search “NSW State Real Estate Auction rules and regulations”). Ensure you arrive at the auction with photographic Personal Identification; this is a requirement of registration. Most importantly, you must register with the Real Estate agency running the auction on Auction day; in return, you will be given a bidding number. If you have successfully negotiated changes to the sale contract through your solicitor, it is important to hand a copy of the changes to the agent at the time of registration; you will be bidding under these revised conditions. You must be in a financial position to transfer a deposit of 10% of the final sale price on becoming the winning bidder, and you will be required to sign the contract of sale binding the successful bid should you win.

THERE IS NO ONE STYLE OR SYSTEM FOR BIDDING AT AUCTION. AS A BUYER’S AGENTS, WE USE MANY DIFFERENT APPROACHES TO SUIT THE AUCTION OF THE DAY

Step 9: The day of the auction. You are entering the day with knowledge and confidence. This doesn’t guarantee you will be the winning bidder, but it will ensure you will be buying responsibly, and if you win, you will have bought well and at the current market value for that property. If you don’t win, then possibly someone else has bought poorly. Stick to your numbers and know that your research doesn’t lie. There are many more properties available that make sense, so don’t let it get you down.

Step 10: The bidding process. We’ve all heard about it or witnessed it, the pressure and seemingly coercive environment of an auction. Stay calm and don’t buy into it. Have a pad and pen to record the bids as they come in. Don’t ever be swept up by the pace of the auction; you can stop the auction at any time by raising your hand and asking the auctioneer what the current bid is and who it is with; this allows a breather and works well to calm the mood.

Below is a list of points that many people get confused by while bidding at auction:-

1.You can stop placing bids and say you’re out, then re-join the bidding at any time. Taking a breather can allow the auction to weed out the true buyers.

2. The auctioneer can reject your offer and is more likely to do so in the early stages of an auction if you attempt to raise the bid by $1,000 or even $10,000. But this definitely does not apply to the closing stages of an auction. Feel free to raise an offer by hundreds or a thousand dollars in the closing stage if this fits within your pre-determined bidding range. The auctioneer will ask if you would like to make that $5,000 or $10,000. Unless they say they are not accepting your lower bid, stick to your guns and DO NOT raise to the auctioneer’s suggested pricing increment; you have no obligation to do so – this is clearly coercive, and you will simply be increasing the bid against yourself.

Going once, going twice, are there any further bids? It’s at this point that you must establish if the property is on the market. This term means that negotiations have reached a level at which the vendor is willing to sell or has reached their pre-determined reserve. Most auctioneers will either pause the auction at this point to allow the agent to speak with the vendor or reply that the property is on the market and will sell to the highest bidder. It’s important at this point to wait for absolute clarity on the auction status as it will determine if the property is about to be sold to the highest bidder. Keep in mind the highest bidder is not final at this point, and quite often auction bidding reignites following the establishment of “being on the market” with new bidders entering the ring.
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The third option at this time is the auctioneer recommences the auction with a vendor’s bid. Although not necessarily the vendor’s reserve price, the vendor’s bid allows the vendor to steer the auction toward their preferred sale price. From this point, you’ll clearly know if it’s within or outside your range. Quite often this technique is used in an auction with little bidding activity and is best to maintain an observer position to see if others place a further bid. There is a high chance the property may be “handed in”. (Sale price did not reach the seller’s expectation and the property has failed to sell.)

5.Prior to an auctioneer announcing a property has been handed in, he will try to extract a bid from the crowd and state that the highest bidder has the right to negotiate with the vendor after handing in the property. This is a contentious point as all negotiations following an auction are done under auction conditions that allow, should a property not sell under the hammer, for any registered bidders to take part in the negotiations, not just the highest bidder. Allowing a property to be handed in is a great way to negotiate a sale afterward in a much calmer environment.

6. Real Estate agents whispering in your ear. As sweet as this may be – lol! This is coercion; just be polite and tell them you’d like time to consider your options.

7. Body language. As important in a game of poker as it is at an auction. Wear your poker face, and ensure your body language stays neutral or alternately a little misleading for other bidders. For example, remove yourself from bidding in the middle of the auction and walk to the side or back of the group. This can imply you’re out and also allow for a good observational position to see who the enthusiastic bidders are while you plan your return.

8. Keep your emotions in check and know how to spot emotionally attached bidders who may be focused on winning the auction at any price. You’ve done your research and set your bidding parameters; just because someone is willing to bid hundreds of thousands of dollars over your cut-off point does not mean they are buying well. Just walk away with confidence knowing you weren’t that person.

Buying at Auction is emotionally exhausting and potentially very risky. Always enter an auction fully equipped with the knowledge and strategy to ensure you only buy well according to your research, expectations, and needs. Undoing a bad purchase in Sydney starts at $100,000, and that’s based on a one million dollar property and accounting for lost stamp duty, agent’s fees, re-marketing expenditure, and holding costs. Add to this the high risk of overpaying at auction, buying a property with faults or strata issues, and this number can easily run well over $200,000 or 20% of your purchase cost in lost equity to undo a bad purchase.

Buying a property in Sydney is a full-time job; if you’re too busy with work or family, consider using a professional Buyers Agent working 24/7 on finding you the right property. At MCS Buyers, our full suite Buyers Agent service fee is just 1% of the home purchase price. A fraction of the cost of buying the wrong property, as illustrated above, while receiving the Knowledge, Experience, Expertise and Accountability of a Professional Buyers Agent. The above article outlines how we approach every auction and purchase to ensure we buy well in the Sydney market.

Buying well in Sydney is a full time job.

Buy well with MCS Buyers.

Important Note: The above article is not intended as financial advice and readers should conduct their own research on market and interest rate trends and general domestic and global financial markets. It is strongly advised that anyone looking to buy property should first seek professional financial advice from a licensed accountant, financial planner, and mortgage broker to review their individual financial circumstances and capabilities. When buying a property ensure you use licenced conveyancing solicitors and certified industry and building professionals.