What you need to know about auctions this spring

1st Oct 2014By: Charles Tarbey

The past few years have seen interest rates at unprecedented lows, a surge of interest in property as an asset class, and dwelling values increasing steadily. As the weather now begins to warm up, the traditionally busy spring season of real estate is also likely to drive auction activity across many Australian suburbs.

Once the decision has been made to sell at auction, many vendors will have a variety of strategies available to them in seeking to reach their desired selling price. Bidders alike will have different strategies on hand to assist them in achieving their desired result at auction.

Vendor bids

The use of vendor bids has traditionally served to encourage increased bidding in a sluggish auction, where bidding has not yet surpassed the reserve. Vendor bids might be placed at various points throughout the auction, and are usually announced by the auctioneer on behalf of the vendor.

I believe the use of vendor bids can be an effective strategy under certain circumstances. When placed at the beginning of an auction, they might assist in getting the ball rolling while indicating a ballpark figure around which the vendor is willing to sell. When placed in the middle of an auction, they could help to indicate the floor price under which a vendor might be unwilling to sell.

However, while this might be one strategy, which adds some energy to an otherwise lacklustre auction, there are certain risks associated with its use. A vendor bid at the beginning of an auction is placed without any pricing indication from bidders hoping to place an offer. A vendor using this tactic runs the risk of signalling a price, which is out of the price bracket of these bidders, which may lead to the auction stalling before it has begun. Similarly, an auction may be stalled midway if a vendor bid is placed at a price, which is above the maximum of those already bidding. Bidders faced with a vendor bid, which surpasses their maximum price may simply concede defeat – leaving the property to pass in at auction.

Proper pricing

A vendor might instead consider investing in a strong marketing campaign, an experienced agent, and some research into the market value of the property. These are all strategies, which begin well before auction. The market value of the property might be most accurately estimated through listening to the advice of an experienced agent who has sold a number of similar properties in the area. When setting a price, it may also be helpful to ensure you have a highly effective marketing strategy that drives interest from a number of buyers. The price ranges of these buyers can provide a vendor with an idea of the value that the market might place on their property.

I believe these strategies should generate enough interest in the property prior to auction so that vendors may not need to use vendor bids to reach their desired selling price.

Auction emotion

Buyers alike might wish to arrive at an auction with some sort of strategy in mind. It can be easy to get caught up in the excitement on the day as the property stands before you and other bidders place competing bids. However, it may be wise to set a price limit beforehand and then stick with it once the auction is underway. When bids are only rising by $500 increments, it may feel that the price is not rising substantially. However these $500 increments can lead to an increase to the value of thousands of dollars, which may make a big difference to the final price.

Bidders may also wish to consider that many auctions do not stop at an odd sort of number. If the last bid placed was $499,500 then it’s likely someone else will bring this up to $500,000. In the end, bidders really only come in two categories: the eventual buyer, and those who drive the price up for the eventual buyer. By positioning yourself appropriately and keeping some of these tips in mind, bidders may have greater control over which category they fall into.

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