One of the biggest hurdles you will need to overcome is underquoting on auction properties by real estate agents. Agents routinely underquote by about 20 percent to get people to the auction. If you fall for this ploy you could find yourself spending a lot of money on building and pest reports for properties you cannot realistically afford.
Auctions are all about competition and everyone wants to be a winner. Bidding frenzies occur when buyers let their hearts — or egos — rule their heads. And horror stories of people who later regret getting carried away at auction abound.
To play the auction game successfully you need to remember agents are likely to be underquoting by up to 20 percent. This means if they say $500,000 and you cannot afford $600,000, walk away.
Next you need to devote the time and energy to know thoroughly the market you are buying into. You really need to inspect about 100 comparable properties and carry out detailed analysis of recent sales in the immediate vicinity before you can confidently arrive at a fair value figure for your dream home, a process that will take many weeks.
If time is a problem or you want to double-check your figures, it would be worth considering hiring an experienced valuer, which will generally cost a few hundred dollars. Once you know the value you can work out your "walkaway" price which is fair value plus maybe a premium for emotional value as it’s going to be your home. This is your limit and if bidding goes above this figure, you’re out. No ifs no buts.
If you do not think you can be this disciplined, get someone you trust to bid for you and do not even attend the auction.
Remember you will need to have your money lined up and any inspections carried out before the auction because if you do buy under the hammer it’s unconditional – there is no cooling-off period.
Moves to stamp out dummy bidding in NSW, Victoria and Queensland have generally made the auction process more transparent. But dummy bidding, non-genuine bids meant to inflate the price, can still be carried out by vendor’s relatives or friends without the selling agent knowing. So watch out!
