How To Win a Property Auction and Stop Overpaying

As the market starts to heat up more and more properties are selling at auction and if you aren’t careful and don’t have a good auction strategy you can end up paying way too much for a property or missing out completely.

So how can you approach an auction and what’s a good auction strategy.

0:00 – Introduction
0:53 – Before the auction
3:30 – Trying to buy a property before auction
6:15 – Take the emotion out of it as much as possible
7:33 – Talking to the auctioneer
10:15 – Starting the auction early and low
12:50 – When you lose control of an auction
14:13 – How to approach an auction with less registered bidders
19:30 – Summary

Recommended Videos:

Secrets To Buying Property In a Hot Market

Transcription

Ryan 0:00
As the market in Australia starts to heat up, more and more properties are now selling at auction. And if you aren’t careful, and if you don’t have a good option strategy, you can end up paying way too much as an investor for a property than you should. And what could have been a great return on investment setting you up for your future then becomes a disappointment down the line. So we don’t want that for you. So how can you approach an auction? What’s a good auction strategy for you looking at purchasing an investment property? Hi, I’m Ryan from OnProperty, helping you achieve financial freedom. And so I’ve got with me, Ben Everingham, buyer’s agent from Pumped on Property, who’s got a plethora of experience in this. And this is happening more and more now in the Brisbane market. And it’s always going on in Sydney and

Ben 0:41
Melbourne, as well. So I think it’s something we haven’t touched on. And it’s really important, especially the property that you want is going to auction. So talk us through us, Ben, the property is on for auction, what are our approaches, let’s start leading up to the auction. Sure. Now that is so important. And because that’s exactly where we start. So leading up to the auction for me, I had a client that we bought for an auction this weekend, that just went past. So we did a building and pest inspection. We went to their mortgage broker and made sure they had a formal finance approval in place. We got the solicitor to complete the review the auction contract. And we got a town planner and certifier to complete the review the site now, everyone knows that I’m OCD as on this Southern Navy, we do a lot more because you know, there’s almost 2000 bucks worth of stuff going on there. But that gives you the confidence to go to auction because it is an unconditional contract and have that certainty that, you know, five people have double check your back.

Ryan 1:37
Yeah, so at an auction, the contracts different to if you’re just negotiating with someone who’s just got the property on the market, and it’s a private sale to you, you can negotiate the contract and change some things at an auction, there’s a lot less flexibility of movement there. And when the auction is done,

Ben 1:53
you’re signing that contract, they’re taking your money, regardless exactly

Ryan 1:56
what they’re taking your deposit there. So being prepared leading up to the auction as an investor is key. Because you need to know okay, how does this fit into my portfolio? How does this property fit into my long term plan, and getting things like getting your solicitor to check over it, making sure you’ve got that finance, so you don’t buy it at auction, and then you finance fall through losing money on deposits and stuff like that. So being really prepared there is super important. And if you’re thinking about development, or if you’re thinking about dual occupancy or granny flats or anything like that, then obviously the town planner, and working with them is going to be really important to understand, can I do this or not, because you don’t want to go to auction purchase the property, then find out afterwards, you can’t actually do what you want to do. So this isn’t going to be the investment you want. So it is that upfront money, which obviously poses a risk. If you don’t get the auction here, you’re losing that money.

Ben 2:53
We unfortunately had a client that missed out on a property by 300k and went 300 what we’re expecting the other way, and they lost that 2000 bucks, but they felt satisfied, mainly because it sold for three expecting versus the other client on the weekend, they did all of their research and ended up buying this place for 65 grand below market value, which still happens like not everyone can rock up to an auction with an unconditional position and not everyone can rock up to an auction with the certainty that you know, they’re going to be able to take it to where it needs to go in the current market.

Ryan 3:28
Okay, so let’s talk about that’s before the auction. What about making offers on a property before auction to try and snag it before it goes to auction?

Ben 3:36
I mean, that’s the dream, right? Because everyone wants a due diligence clause, a building and pest clause and a finance clause in a contract if they can to protect themselves. And you talk to your solicitor about that stuff. But you know, in terms of negotiating pre auction, it’s really a detailed Convo with the agent, starting with, you know, what sort of feedback have you been getting? How many people are coming through? What’s the reason for the sale and getting that background info but what you’re really fishing for is would they potentially be prepared to sell it pre auction for a realistic price and therefore you can get your finger or your foot on the property without having to negotiate against 20 or 60 other people in the current market because

Ryan 4:17
a lot of auctions do fall through and you can look you can look at auction clearance rates in your city and where you’re looking auctions look to be honest, primarily in Sydney and Melbourne, Sydney and Melbourne when the markets hot. You’ve got auctions in Brisbane as well as other areas like woolen Gong, Central Coast Sunshine Coast Gold Coast. When the markets are hotter out there you can see more and more options as well. But the seller is going you got to understand the sellers going into this option with no clarity on whether or not the property is going to sell for what they want. And generally they’re going to have an idea of Okay, this is what I would be happy with. So there is always room to at least ask and negotiate beforehand and if you can purchase it before auction within you skip all of that The auction strategy we’re about to talk about in a minute,

Ben 5:01
you know, the way to purchase pre auction is, the beautiful thing about going to an auction is you may get more because of an emotional bidder, and you’re getting an unconditional contract, which means you take the risk away from someone running away from the contract. So to buy a pre auction, you normally need at least two, if not three weeks to sort of get your ducks lined up. If your offers accepted, they will only accept an offer that before the date of the auction is completely unconditional. Because otherwise, why wouldn’t I just take it to the auction A few days later. And I’ve negotiated in the last five years, maybe 10 of those sorts of deals. But often the reason you can’t buy a pre auction and negotiate well is the agent spent months setting the expectation that I’m going to have this big auction, I’m going to get heaps of people here, we’re going to get a bidding war. And then when they backtrack on their word, they look like shit. And you know, that has a dandelion effect on the confidence with the seller. So I’ve taken perfect contracts through agents, and they’re like, no, we’re going to auction on like, the auction comes in. It’s 50 grand above what is actually sold for to us at the auction. I’m like, yeah, and you should have taken out free

Ryan 6:09
auctions can work in your favor or work against you just depends on the day. So let’s talk about now going into the day, we’ve done the due diligence before, maybe we’ve tried to negotiate before maybe we haven’t decided to go to auction or the agent has, we’re at auction, now

Ben 6:24
we’re nervous, we’re breaking out is most people position. You know, as someone that goes to a bunch of these things, it’s actually like just the game. And if you can approach it in that way, it’s fun.

Ryan 6:34
Yeah, you got to try before you go into it, one of the big things is to try and take some of the emotion out of it. Remember, you’re purchasing this as an investment, not as your own home. If you’re going to auction as your own home, it can be a little bit different, you might be willing to pay above and beyond because it’s where you want to live. But we’re kind of talking more to investors here or people who want to keep that dollar down. So yeah, taking the emotion out of that room and going over your numbers again and remembering, Okay, at this point, how does the yield log? or What does my return on investment Look, if it goes higher, how does that affect my return on investment. And remember, you’ve got the whole market as well, you could buy another property to get a better return on investment, if the auction goes above what you’re willing to pay. So So knowing your numbers before you go into it, and how it affects your portfolio and long term position, I think is really important, is still going to be emotional on the day like it’s gonna happen. auctions are designed for that. But doing that before, so you can kind of keep your head in the game definitely helps.

Ben 7:32
So once we get to the auction, I firstly walk to the agent who’s listing the property and I say, you know, how you gone, how many registered bidders, what’s the feedback at the moment, and you know, just get a bit of a finger on the pulse of the market. But the thing I love about options is you can clearly look around and see what’s going on. And then I go to the actual auctioneer. And this is a crucial step that most amateur investors Miss. I go and sit down with the auctioneer, and I get absolute clarity on his strategy for the day. So what I’ve found is that when you rock up to an auction, it’ll generally start off, it’ll run up to a certain price point, then the auctioneer will go inside, sit down with the owner and come back out. And they’ll say one or two things, it’s either on the market now, the language in every state in Australia is so different. So that’s why it’s so vital for you to sit down with the auctioneer and figure out their language. But he laid the sights on the market were selling today, or it’s not on the market, and the auctioneer will restart the auction. If nobody bids, the auctioneer will put in their own bid. And that’ll do one of two things, restart the option or the property will pass in and it will go to a normal sales process. But let’s say it doesn’t do that. And

Ryan 8:46
they come back out after it’s all right now, before before you go into that when we’re talking to the auctioneer beforehand. What are we trying to understand like what questions are we asking to understand from that conversation?

Ben 8:58
So the one thing that I’m trying to understand is Will he legally tell everybody at the auction that the property is on the market and it is for sale today? Because what happens is a lot of people show all of their cards before he’s even legally put it on up for sale on the day. And so what I like to do is sit back at the auction, watch everybody and sort of get it get a sense of who’s who in the zoo and wait for the agent to say it’s on the market. And then you know, if I think it’s the right price coming over the top and sort of blow the last few people out of the water. So is the idea here not to show your cards if the property doesn’t get to a point where it’s actually on the market for sale. So the auction doesn’t proceed to a certain price where the owner is willing to sell if you’ve made a bid, they know how much you’re willing to pay. Whereas if you haven’t made any bids, then once it passes in, you can negotiate more clearly. That’s exactly it. So the purpose of my conversation with the auctioneer is to really get absolutely verbal confirmation that he is going to stop the auction. And tell me when it’s actually for sale. And so therefore, I can just sit back and I can watch the auction. I can not be emotionally tied to it and I can go shit. It’s going really fast. It’s going above where I wanted to be. Or, hey, it’s looking really really, really good. Now, by the one in Scarborough, beachside suburb in Brisbane on the weekend, we were on the phone for about 15 minutes, myself and the client from Sydney. I started the auction super early, like in super low. So

Ryan 10:27
the property. Yeah, I thought you were saying though, you wanted to wait until it’s on market.

Ben 10:32
So two things can happen, right? In a very, very hot market, the auction can start really high and run way past where you want it to be that quickly. And so what I’m doing in the hot market now is I’m placing the first bid so low, this place sold for 525. And I started at 390 1000. And it took all of the steam out of the auction, that’s like the worst thing an auctioneer can have. So if you start at,

Ryan 10:56
you know, 450 or 480, or 500,000, then it runs up from there. But

Ben 11:01
starting low at 390. And almost setting that frame, you can then setting the frame like taking the same like because auctions build on emotional energy. Have

Ryan 11:11
you had an initial offer rejected

Ben 11:14
because it was too low at an auction? I haven’t. But what I normally say is that super low, but let’s get the auction started like because they are trying to save face as well and continue the momentum. And so let’s say that started at 390. Immediately I heard of for 10 for 2430. Then I went to 431. And it’s the worst thing an auctioneer can hear because it again breaks the pattern of like the easy 10k jumps that people making. And it just it literally stopped at 470. And we thought the property’s worth 600k. Yeah, then they came back out. And the auctioneer is like, the property will be online today. For 520 5k. The auction ran up to about 511. And everyone dropped out. And then we just came in at 525 in the last second of the auction and bought the property now, that strategy of being patient, knowing the process legally of an auction and how to pace it. Yeah, save that client 60,000 bucks versus like if we had have let the auctioneer run it their way, probably spent that extra 60k because there were people that were super motivated, but they didn’t expect it to change like that. Yeah, I don’t know. It’s It’s a trick. It’s a weird one, man, it’s feeling every auction individually, it’s

Ryan 12:26
quite sophisticated skills. And also depending on the skill set of the auctioneer, and how good they are, they can actually kind of override you and keep the momentum going. So even if you go for 31, they can take the next one and you know, back up to 440. Why keep it going? So it really depends on their skill set as well. So it is finicky. It is difficult. What about Okay, so we’re at an auction, and it does just, you know, we lose control of it, it starts high or even if it starts low, and it just runs up above what we’re willing to pay what we thought it would go for. What’s your approach, then?

Ben 13:03
You know, it’s um, it’s really tricky when that happens. Because generally, you’ve invested a couple of weeks of all of this due diligence, you’ve thought about that night you fantasize with the idea that it’s your property already. Yeah. And you’ve spent good money and time on it. And then what happened the other day, we were in an auction room with Ray white, there were six auctions going on that morning. And I expected this place to be worth $1.25 million absolute max, the initial offer was a meal within 30 seconds as it was at 1.4 mil. And on this luck, oh my god, the clients on the phone with me. I’m just like, well, that got out of control, ended up selling for above 1.4 mil, the client felt okay, because it was hundreds of grand above where they wanted to be. But it was just like, from now on. I’m like pacing the auction my own way when I’m rocking up for myself for a client and I’m starting lower, just to take a bit of the stain out of that crazy emotional runner.

Ryan 13:58
Yeah, we always start the auction yourself.

Ben 14:00
I will now in a hot market. In a cold market or a property where there’s only a few registered bidders, I will observe but in a property where there’s 60 registered bidders, I will deliberately take the pace out of the auction.

Ryan 14:12
Okay, so there’s a different approach for hot market with lots of registered bidders versus a cold market with just a few kind of guessing the reasoning for that in a cold market with just a few, you might be in a position where no one makes a bid can play and then it passes in at auction and then we go into the post auction negotiation

Ben 14:30
completely. So what everybody wants the person selling the property the agent and the buyer is for it to just be wrapped up at auction. But you know another example of this was a property we bought about eight weeks ago. We ended up buying it for 1,000,950k. So there are three registered bidders at that auction. By the sat back and watch them I literally was just like this just super casual. There are some very, very emotional people there on the phone as well as I There are three, four bidders, two on the phone from Melbourne and one on the coast. The guy on the coast had like 50 people of his family there, like he was completely emotionally set. Yeah, I talked to the auctioneer before the auction. And I got that confirmation that he would tell us when it’s legally on the market, I sat back, and I watched them completely bid themselves out. Now, the property sold for about 200k less than it was worth at auction to us. But what’s what happened? The people like the two on the phone, and the one person there started the bidding. And they kind of got themselves up to a point where just no one was going higher. Well, the you know, the auctions stalled. And the auctioneer said, those people on the phone, can you go any higher? And they said yes, after the auction, but no higher in auction terms. Okay, and so the two phone bidders dropped off. And then the third guy was there on his own,

Ryan 15:49
just to give people clarity who haven’t been in auctions before. Why would they do that on the phone? Yes, I can go higher, but not at auction. Is that because they don’t want the unconditional contract?

Ben 15:59
Yeah, it’s because generally everyone that comes to an auction has a pre approval in pre approval in place for a certain number. And obviously, it had gone a bit above what they had expected. And so it’s extremely dangerous for them to proceed under auction times because they’re at risk for the full liability of the property. If they can’t settle,

Ryan 16:17
okay, so they would say, Okay, I can’t go higher after auction, because I means I need to go back to my bank, or I need to get a contract with a finance clause in it. So they can’t get that extra 200 grand or 300 grand to finance, then I’m not giving my deposit and losing it completely, completely. Okay, that makes sense. So

Ben 16:32
I’m watching these, I’m watching the auctioneer say, you know, put pressure on these people and then just drop off. One of them hung out, one of them stayed on. And then I’m seeing the agents work the guy and the guy on the other side is like, I’m not going $1 further, it stopped the auction. The auctioneer went inside and talked to the people. Then he came back and talked to me with the top agent and said, they want to sell it today. This is the price that they’ll sell it for. They went over and said the same thing to the other guy that was there. And he thought he was the only person because I hadn’t done anything yet. He said not $1 more. So the auction he went, we’re going to pass this on one to one, three, I said $1,950,000. And he went. So that was it. Like it was just that it happened in that second, the guy on the other side of the room was just like floor, he was so emotional. He went, you guys overpaid, like he was like so emotionally distraught from the decision that he’d made. And he’d obviously invested like six weeks of thinking on it and had bought his whole family along like I felt sorry for the guy. But under option terms, if they had have shut it down, they would have got another 200k for the property that everyone the auctioneer, the sales agent and the person was so invested in getting a result on the day that they sold it for hundreds of K below what they should have,

Ryan 17:51
because obviously there’s risk, if they don’t sell on the day, then they’re back on the market, those falls over finance falls over it could be on for weeks. And then when a property has been on for too long, then it becomes really hard to sell agents aren’t getting their commission owners like might just decide to pull it off the market. There’s so many things that can go wrong. Post auction, that means that won’t sell so often the owners just want to sell it there and then be done with it. And no, and the agents want to as well. Yeah. And obviously, you know that guy was playing hardball because he’s like, Nah, I don’t want to pay more. He thought he was the only one left in it. But yes, that’s part of the game, right

Ben 18:28
is it’s like it’s a game. You can take the emotion out of it, whether you’re going for yourself or for someone else, or with a friend, like a good friend of mine went in South Sydney the other day, had a $1.2 million budget, there were 100 registered bidders to this place in anger then, and it sold for over 1.3 mil and he just went thank god like when it sells so much above your budget. It’s actually a good feeling. Because it’s like I wouldn’t have paid that on to the next one. But it’s hard

Ryan 18:57
when it goes just above your budget.

Ben 18:59
That’s that’s a deadly one when it’s you could have bought it. Yeah, like this is incredible straight just down the road from where we’re filming oceanic drive on the sunny coast. I went to an auction two years ago there. This place just off the beach sold for 650k. I was sitting next to this guy at the time just like you and I and he’s like, mate, this is too expensive. Get into the Hobart market. And I was like I was letting this guy influence me. I’m like, oh, maybe it is too expensive. That same property is now worth 1.5 mil Yeah, in two years, like so it’s like you’ve just got to have a strategy, like Ryan said, know what your budget is based on the comparable sales, do all of your due diligence, go for broke, whichever way you decide to do it, whether you play it slow or just be an aggressive part of the auction. And then, you know, hope that it works out but it’s a 5050 like you never know and that’s what the fun of auction is, I suppose but also that

Ryan 19:55
sounds like you had a lot of fun at that last one.

Unknown Speaker 19:57
I loved it.

Ryan 19:58
I had the best time there. You get a good result in the end result?

Ben 20:02
Yeah, yeah. And that’s the thing about auctions like, sometimes that place doesn’t appeal to everyone. And there might be a tiny bit of work to be done. Or it might be like not quite the mom and dad’s liking. You just you can pick up things for steel.

Ryan 20:16
So sometimes you can pick up things under market value at auctions, which is not something that people usually think about, because I think auctions it goes over market value, but it really depends on the auction, and how it goes, as you said, 5050, which way it goes. But hopefully, these sort of mindsets, these sorts of strategies, going into it can really help you at the auction helps you with your approach to it, talking to that auctioneer was a great tip, as well. And just some of the things that you can do to prepare yourself beforehand, I think is really important, as Ben said, knowing the comparable sales in the area. So having an idea of the actual value of the property compared to other properties in the area that you could buy, you know, not at auction, that’s going to be powerful as well. And just know that there’s other fish in the sea, too, that if you don’t land this property, there’s going to be another opportunity around the corner for you.

Ben 21:08
One thing about auctions is like you said, like doing your research prior and IRC agents, some questions, so I’ll never go to an option that I’m not certain I can win. Like I genuinely only show up when I’m like, I’ve talked to the agent. And I, you know, the agents not going to tell you what other people are saying, but often they will. It’s like, what type of feedback is a good question? Have you been getting from other people? Where do they see value? And then you can ask the same question in a different way, what comparable properties? are you basing this off? And they’ll go, Well, this one, this one, this one, and you can sort of get a gauge between those two things? And then, you know, what are the reasons for the auction? Or what are the reasons for the sale? If it’s divorce, the seats to stay distressed property, mortgagee in possession, which is the bank selling it or solicits selling it, like, often there’s a family member that has no emotional attachment to the family with money coming in very, very quickly. If they get a sale result. Yeah. And they just sort of sign off on whatever and just want to get it done on the day. Because it’s another thing off their list. It’s like, it’s, it’s real fun.

Ryan 22:13
And talking to the agent asking those questions, agents probably shouldn’t tell you, but they almost always do, right. I’ve been to so many inspections and stuff for properties for clients. And you ask the agents, those questions and they just spill the beans on everything. And so you know, where they stand, what kind of figure they’re looking for all of this sort of information. So that’s that’s a cool tip as well, which we’ll talk more about in the next video where we’re talking about how to buy property in a hot market because it is heating up here on the Sunshine Coast and in Brisbane and southeast Queensland in general. So where the market has been quieter over the last, you know, four or five years really starting to see things ramp up here at a quick rate. And so we want to help you guys be educated on Okay, you know how to market How can you approach buying property so go ahead and check out that video once it’s live. Thanks so much for tuning into this. We wish you the best your next auction or whichever property you purchase, and until next time, stay positive

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