Many buyers find property auctions appealing because of the benefits these events provide. But like any competition, there can really only be one winner so it pays to come well-prepared and battle-ready.
Michelle May, Sydney-based buyer’s agent and principal at her eponymous agency, explains the benefits of purchasing a property at auctions, how to come out on top, and what lies ahead Australia’s for auction market.
What are the advantages of buying a house at auctions?
May, who boasts 24 years of experience as a buyer’s agent, says there are many reasons why buyers should consider auctions a great opportunity to purchase a property. She lists some of the benefits below:
1. You get to read the play.
To be successful at auctions, a buyer needs to stay one bid ahead of their competitors and reach the reserve price. This is where the ability to read the play and accurately judge competition come into play.
“I get a kick out of the buzz of auctions,” May says. “You’re able to see people there and gauge their reactions and emotions. People watching is very important and gives you a unique advantage.”
She adds that there is a striking difference between in-person auctions and those that happen in auction rooms.
“Agents much prefer the experience of everyone out the front lawn, watching the auction in action,” May says. “Buyers and even onlookers love it.”
2. You have a defined timeline.
An auction is one of the quickest ways to buy a property. May says auctions generally have a fixed timescale of four weeks, meaning the purchase can be completed in less than a month. This includes time spent on inspections and filling out paperwork.
However, she cautions that when you win at an auction, it means you’re locked in.
“There is no cooling-off period,” May says. “This means you don’t get your deposit back if you choose to break away from the deal. You also can’t negotiate the terms and conditions after you score the house.”
3. There is full transparency.
May says the conspicuousness of the process is what draws her to auctions over private treaties.
“In a private treaty, it's a very cloak-and-dagger situation,” she says. “You have no visibility of where the other buyers are and what their motives are. At an auction, you can actually see your competition.”
How did the COVID-19 pandemic affect the property auction market?
Like many other industries, the property market was not shielded from the impact of the COVID-19 pandemic The government-imposed lockdowns and social-distancing measures meant public gatherings were prohibited for some time, which May says, left the property auction sector “scrambling” at first.
“There has been a major readjustment to in-person auctions to managing it all online,” May says. “Like with all new technology, there was a lot of disruption and glitches initially in the migration and usability of proptech platforms.”
She adds that the sheer rush to keep the real estate industry running and auctions on track for scheduling has resulted in the hasty online shift and diminished the practicality of running an auction.
“The auction model has been tried and tested for many years and [what happened] was quite a challenge,” May says. “The immediate response from consumers was dismal.”
“The feeling of being online rather than in-person was quite strange. Auctions are generally very busy and lively, and there is a real humanised connection. Online auctions saw everyone being quite removed and unable to gauge people and their emotions,” she says.
May says she felt a general sense that buyers were hesitant to purchase properties at online auctions.
“The property market is a very visual thing, and you need to see and experience it in person,” she says. “Not only did it take some adjustment from the industry, consumers needed to adjust as well and the response was of course, quite reluctant. People feel safer attending an auction in person.”
But now, with the restrictions lifted, May is thankful that traditional auctions are once again allowed to take place.
“It's now back to being in-person with social distancing in place,” she says. “Only people that have registered are allowed to attend the auctions. No room for on-lookers!”
What are the most important things to consider when bidding at auctions?
Mays advises potential buyers to never go to auctions ill-prepared. She lists five important things that will help pave the way to success.
1. Due diligence.
“You need to do your due diligence beforehand, so you understand the full scope of the transaction and what you're buying in too. Do not go to auction and bid without it. You also need to do your market research of recent sales in the area through auction to see what scope you’re playing with.”
2. Prepare a checklist.
“You need to have a checklist of ‘how well this property meets my needs’. Does it fit within your life's plans for the next five years?”
3. Stick to a budget.
“You also MUST stick to your budget. Do not get caught up in the whirlwind of an auction. And don’t listen to that agent in your ear, telling you that ‘$1,000 isn’t much more.’”
4. Get pre-approval in place.
“Pre-approval has to be in place and that pre-approval covers that maximum limit of what you would pay for the home.”
5. Be confident.
“You have to believe that this is the right home for you. If you’re confident and willing to win this property, don’t be afraid to open up the bidding!”
What does the future hold for Australia’s property auction market?
May believes that the auction market’s ability to adjust to the current economic climate will lead to the sector’s growth.
“While traditional auction markets will be here to stay, the technology to run online will become more sophisticated,” she says. “I do believe that a mix of online and in-person auctions, and the option for either, will become the norm. This will make auctions more accessible for people to participate in.”
She adds that the auction market will be remain strong in capital city markets where “there is an underlying demand.”
“The property market in general always has its ebbs and flows,” May says. “In February, the market was soaring with the amount of buyers and sellers out there. We were coming off the back of a slump and the market was so buoyant. Flash forward to now and I do believe that the real estate market has done incredibly well considering the challenges.”
Asked where the strongest markets are for property auctions, May says that the “financial drivers” of Sydney and Melbourne are the most stable, and adds the city suburbs are likewise robust markets because “there is always an underlying demand for property, as well as [large number] of buyers and sellers in these areas.”
“It's the markets that have really low supply in property that are the strongest for auctions,” she says. “Conversely, where there is more stock on the market, are the weakest auction markets.”
Top tips when bidding at auctions
While it’s true that auctions are places where competition occurs, May suggests that participants still enjoy the experience. Here’s her top advice for buyers bidding at an auction.
1. Soak up the experience.
“When you have no skin in the game, you can just observe. And because some auctions go so fast, you might even want to film it, so you can analyse later!”
2. Be inquisitive.
“It doesn't harm to ask the agent questions about the seller and potential other interested buyers, so you get an idea of who to expect. Were they first home buyers? Are they empty nesters? You need to have a good understanding of who you’re buying from.”
3. Have a strategy.
“In terms of bidding, you have the agents price guide and other information gathered from having conversations with them. Then you have what the auctioneer is saying. These will give you an indication of where they want to start the bidding. So, depending on where you sit and what your budget is, you may want to come in first at high price, well beyond the reserve and disrupt the momentum.”
4. If you can, hire a professional.
“Buyer’s agents are professionals at bidding at auctions. My success rate sits at 80%. That is not luck. It’s being able to read the situation and understand the variables at play.”
