Expert advice for buying an investment at auction

Technically, an investment purchase should be all about the numbers, but throw the emotion-charged atmosphere of an auction into the mix and even a hardened investor can find it difficult not to get caught up.

Paul Osborne, director at Secret Agent, which is a buyers’ advocate service, says there are several things you can do to ensure you stay cool and calm when buying an investment property at auction.

Do your research

It’s critical that you understand the market and have an accurate handle on the value of the property you’re bidding on, explains Osborne. “Don’t rely on agent quote ranges. Instead, attend a number of comparable auctions and see for yourself how many people are bidding and what the type of property you’re aiming to buy is actually selling for.”

Prepare in advance

Osborne advises investors to sit down and decide exactly what they are prepared to pay for a property, well before auction day. “It’s surprising how many investors work it out on the spot, which is risky. Even though an investment is not something you’re going to live in yourself, there is still an emotional component to any auction, and the rush of adrenaline can result in irrational decisions,” he says.

“If you’ve written down your limit ahead of time, chances are you won’t overpay for the asset.”

Determine your bidding strategy

There are many ways to approach bidding for an investment property at auction. “A good strategy is to be up-front and out there quickly with your bidding,” advises Osborne. “If you know there’s competition, don’t try to start too low because you may inadvertently boost other bidders’ confidence and end up with a lot of people competing, which can inflate the price.”

“Instead, start the bidding at the level you think the price will end up – this way you’ll cut out a lot of bidders at the lower end,” he says.

Be a bit flexible

While you may have a pre-determined auction strategy, Osborne says you should still be prepared to be flexible on the day. “Every auction is different and the way the auction goes will impact your bidding decisions.”

“Sometimes another bidder will jump in straight away and you might decide to stand back and see where things go before putting your hand up,” he says.

“If bidding stalls and the auctioneer hasn’t announced the property as ‘on the market’, make sure you’re the highest bidder, so you have the first opportunity to negotiate once the property passes in.”

Consider a pre-auction offer

Osborne says securing a good investment property before it goes to auction can be a win-win scenario for vendor and investor. “Depending on the market, it may be worth making a pre-auction offer and taking the property off the market. While some vendors won’t consider pre-auction offers, others find selling at auction stressful and may prefer ‘a bird in the hand’.”

“Assess current market conditions, the level of competition for the property as well as your upper limit, and make your move accordingly,” he says.

Project confidence

Even if you’re shaking like a leaf, Osborne says you should aim to look confident. “Don’t be timid when you bid. Other buyers will be looking at you, trying to assess how deep your pockets are. Being confident can discourage other bidders from trying to test you and push you up.”

“At the same time, don’t be cocky and stir up any egos – you may inadvertently fire up another bidder’s competitive spirit so that they are essentially bidding to beat you. There’s a fine line between displaying confidence, and not overdoing it.”

Enlist support

Having a friend or family member with you can help you stick to your guns at auction and resist the temptation to bid over your limit. “Engaging an experienced buyer’s advocate, who will bid on your behalf, can also ensure you don’t get carried away.”

Be prepared to walk away

The economy and the property market can turn quickly, and Osborne says paying too much for an investment property can be a mistake with long-term consequences, particularly if the market drops. “The purchase price will continue to impact your capital gain for the period you own the property, so you definitely don’t want to overpay for it at the beginning,” he says.

“The discipline of being an investor is being firm on price and being prepared to walk away from an auction if bidding exceeds your threshold. It’s better to miss out at a number of auctions than keep increasing your limit.”

And remember…

“Don’t be discouraged if you miss out on an investment property at auction,” says Osborne. “Opportunities are like buses – there are always others coming around the corner.”

Getting carried away at auction can seriously impact your property investment outcomes. Keep your cool with a firm, well-researched upper limit and a bidding strategy with inbuilt flexibility.