Want to win at auction? 26/03/13

“How do I win at auction” is a question I get asked a fair bit, even considering what I do is buy real estate for people for a living. Apparently there is a perception in the general public that buyer’s agents have an innate ability to somehow crush the competition at auction and snap up a bargain. Well guys, sorry to disappoint, but there is no magic bullet here. There are a few tips that work more times than not though.

Strategy comes in to play a lot, this is true. However the strategy you employ will depend on the type of crowd and the type of buyer on the day. No single plan will work all the time. It’s more about understanding the competition and convincing them they don’t really have a great chance of a win. How you achieve that goal can differ. The thing to remember is that being unpredictable will generally give you the best shot.

How many auctions do you go to that follow this pattern: After the auctioneer finishes reading out all the rules he calls for a bid, then, silence. Finally someone will open really low, there will be a few struggling optional bids, if lucky, then it gets called. The Auctioneer then goes to consult his vendor. They come out, start the whole process again and then people that were quiet before start to put their hands up. A bit of activity and someone tries to slow the bidding by putting in small bids of $1000 or less. Finally after a lot of argy bargy a winner emerges and it’s sold, or passed in if the reserve isn’t met. “Yawn”…

Understand who we are up against here. Firstly the other people in the crowd, who all have the same “wait till the last minute” strategy. Secondly the Auctioneer who aims to whip up the urgency and the sense of perceived loss to increase the frequency and size of the bidding. Finally the Vendor, who no doubt has an unrealistic view of their properties worth. The vendor will change their mind, eventually, when they are tuned by the real estate agent during the auction. That’s just life. The agent will reduce the pressure on the bidders as soon as the reserve is met, because he knows he has a sale on his hands. Understand though, that regardless of whether you beat everyone in the crowd, you still have to beat the vendor’s own concept of the places worth or their reserve.

Let’s assume you do this on the day, so you only have the others in the crowd to beat. So what do you do? My advice, try mixing it up. Be the first bidder. You have an idea of what your reserve is and what the place is worth roughly, so why not bid to 90% of its value on the first bid? It will immediately knock out all those who have less money than you, reducing your competition, it will suggest you have a heap more cash than you do, because let’s face it, who opens at nearly full price? (Remember what I said about predictability). It will also highlight the “real” competition that has more money than you. They will sense the competition, the urgency, and respond in kind. Understand something, if a person is there on the day with more money than you, you were never going to win in the first place. Why not get to a reality position early?

From there I would tend to finish what I started. If someone comes back at me I’d hit them again in a $5k-$10k increment, depending on what I had to spend. No little bids please, that’s for people that haven’t the financial strength to win. So what if it doesn’t go back in for vendor consideration? Are you there to play or to win? The perception of strength and bottomless pockets tends to change other people’s minds. It’s funny, but so many people don’t want to enter a competition they think they can’t win. It’s embarrassing to try and fail. Especially in public! Such a costly and limiting mindset.

See how the confident, strong approach can change your opponents mind and in some cases eliminate them completely? By being proactive and big you either win it, or find out you were never going to win it very quickly. The quicker it happens, the less chance you give the agent to hype up the situation and drag out the bidding. Short and sharp will get you a result either way.

Guys, this doesn’t work all the time, and different auctions call for different strategies. My Advice for really winning at auction, is not attending. Go and buy at private sale. Easier to control and generally assures a more “bargain” focused result. But that’s just me. For now negotiate hard but fair. Have fun and buy well.

Garry McPherson

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