How to navigate different auction scenarios

After years of outperformance, Australia’s property market is showing signs of being in a downturn and this is having an effect on buyers’ purchasing strategies, especially at auction.

Domain Group’s House Price report showed house prices fell 1.2 per cent across the country over the March quarter, with Darwin falling the most, followed by Sydney. The downturn has been fuelled by tougher credit rules, stagnant wages growth and increased supply, putting the purchasing ball into the buyers’ court.

Make an offer pre-auction  

Buyers’ agent Chris Gray says his strategy is to always try to buy before auction.

“We try to persuade the agent to take a reasonable offer rather than risk going to auction and the vendor maybe getting a premium but maybe also getting less than what they want,” he says. “The agent would rather get a definite deal today than risk going to auction and have no serious buyers turn up.”

Under The Hammer principal Matthew Shalhoub says his company is seeing a lot of pre-auction sales.

“If you want to make an offer pre-auction, the most important thing from a buyer’s perspective is to let the agent know,” he says. “You also need to make sure you’ve got your finance sorted.”

When a property fails to sell

If a property fails to sell at auction, Gray says buyers can still try to purchase it that day by negotiating with the vendor afterwards – although you generally need to be the highest bidder.

“But if you are not desperate you are better off letting the vendor sit on it for a couple of days to get their expectations down to a realistic level,” he says. “If a property doesn’t sell at auction or immediately after it gets a reputation for being ‘stale’ and that something may be wrong with it. The price then could go down by quite a lot.”

Gray adds a good agent would be telling the vendor that they need to be realistic at auction when setting a reserve price because if it doesn’t sell then or within the next couple of days it could be a struggle to sell it later.

Know what a property is worth

One of the best tips for buying at auction is to know what a property is worth, Gray says.

“You need to have been to a number of auctions and tracked the prices from the last few weeks,” he says. “Or you need to hire an independent valuer who can tell you what it’s likely to be worth.”

He adds once you know the price then you are unlikely to get too emotional and overpay.

“You will find the right deal if you have long enough to wait,” he says. “Knowledge is key. No matter what the market is, you have to understand what you’re buying and what the price is.”

Be confident when you bid

Shalhoub says there is a confidence issue at the moment with people trying to guess what the market is likely to do.

“But if a property is within your budget, you should have a go at bidding on it,” he says. “If the competition isn’t strong it may give you the opportunity to get something that is below what you were anticipating to pay. If you don’t put your hand up, no one knows that you want to buy it.”

Macquarie Bank sales engagement manager Lucinda Schettino says buyers need to be aware of the financial aspects of buying at auction.

“Before attending an auction to bid you should have approached a lender to understand how much you can borrow,” she says. “I have seen clients buy a property and then apply for a loan, which has led to issues when they don’t get the loan they want.”

Schettino says it is all about the preparation. It helps to be focused on your budget and savings in the months leading up to when you want to buy, she says.

Macquarie’s Transaction Account features digital tools that make it easy to manage your money. You can set budgets for different categories, get an overview of where your money’s going and open multiple savings accounts. Customers can keep it simple by nicknaming accounts for each different savings goal such as house deposit, school fees, or holiday.

When it comes time to apply for a home loan, you can use this information from your budgets and spending overview as part of the documentation you’ll need to provide to the lender.

“You need to understand what documents you need and what interest rate you will be paying,” she says. “Most borrowers will be required to provide lenders with information around their living expenses, income, employment and off the back of this the lender can prepare an application for a pre-approval.”