How to bid at auction in a cooling market

A cool change has swept through Australia’s auction market, with rapid-fire bidding, strong buyer turnout and runaway prices now the exception at auctions rather than the norm.

Bidding is now slower to start and more likely to stall, with fewer buyers turning out to compete for homes, while those who do are more restrained as a greater supply of properties gives more choice and reduces the fear of missing out.

Auction clearance rates dipped below 70 per cent in Sydney, Melbourne and Brisbane last month, and the dynamics of the auction floor and campaigns are changing.

Here’s what buyers need to know amid the cooling market:

Fewer homes soar past price guides, but research still key

Fewer homes are selling well above their price guides and reserves, and more property guides are dropping in the lead up to auction, says Sydney buyer’s agent Oliver Stier, principal of OH Property Group.

Buyers should no longer be automatically adding 10 per cent onto a guide, with greater odds of securing a home within the advertised price range, he says.

“By the third week of the campaign [a more expensive home] may actually be in budget if the guide is revised down.”

Melbourne-based buyers advocate Cate Bakos, of Cate Bakos Property, said competition is still there but buyers can expect more realistic prices. While it is hard to apply a rule of thumb to guides, quite a few homes are selling at the top of their range, rather than well above, as seen previously.

Both Stier and Bakos say it is key for buyers to research recent comparable sales, which gives a good price indication, particularly given flatlining prices in recent months.

While A-grade properties are still exceeding expectations, second- and third-tier properties are selling closer to price guides, says Ray White NSW chief auctioneer Alex Pattaro.

Vendors of such homes are also typically reducing their reserves on auction day to meet the market, but he says these had typically been inflated to begin with.

Be prepared for the property to sell before auction

More than a third of Sydney properties scheduled for auction last month sold early, while one in five Melbourne homes sold prior, Domain data shows.

House hunters need to be prepared to buy a few days before auction, Bakos says, rather than scrambling to get finances and legal reviews in order when the call about selling early arrives. Ensuring an agent knows you are interested is also key, but buyers don’t need to disclose their budget.

“If you pretend you’re not interested, you might not even get a phone call [about it selling prior] … and you’ll get to auction day and there will already be a sold sticker,” she says.

Buyers do not have to make an offer, and can take the gamble of waiting until auction day if no one else is making early offers. But if they can buy a home early for a fair price, she recommends it.

In a cooling market, agents typically push to sell prior if they have only one or two serious buyers, Stier says.

“Selling agents are calling all week trying to get someone to put in a pre offer … and might try to do a dutch auction [beforehand], which is not as transparent,” he says.

“You don’t have to put an offer in prior, but if somebody else does … [ask if] the vendor is selling at that level. If it’s selling, you put a higher offer on … but often that first offer is not at a sell [price].”

In many cases, his advice is to wait and face the competition on auction day, particularly if the vendor has inflated price expectations.

Bidders are holding back at auctions, but that’s not the best approach

Bidding strategy at auctions comes down to personal preference, but buyers have become more reluctant to make the first move.

Opening bids are now slower to arrive, Pattaro says, and bidders are remaining silent altogether at an increasing number of auctions. That is to the buyers’ detriment when there are numerous parties – with the group’s auctions drawing an average of four registered and 2.5 active bidders – as they then compete post-auction in a less transparent environment.

Confident, strong bidding is still key, says buyer’s agent Greville Pabst, chairman of WBP Group. But he warns buyers not to get emotional and to lock in their price limit well before auction.

“If you’re there to buy, what have you got your hands in your pocket for?” Pabst says. “If the [auctioneer is] looking for a bid, I’ll give one. It may be at the lower end of the guide … but I’ll start it off.”

Bakos agrees that strong, firm bidding is best, adding it can startle the crowd in a cooling market and position buyers in the front seat. Buyers should ask agents before the auction about the number of registered bidders to get an idea of their competition.

“Stick to your price and strategy and be strong … don’t stand back to see what happens. The worst thing you can do is sit back and let more competition happen post auction,” she says.

Stier is less set on bidding when others are not, noting he prefers to refrain and then negotiate privately afterwards, so he isn’t revealing to other buyers what he is prepared to pay. However, he notes that he is very comfortable with the negotiation process, while others may not be, and that some vendors with high expectations need to see bidding to come to terms with the new market.

You may be encouraged to bid against yourself, but don’t

While it may sound absurd to bid against yourself, it does happen, with agents at times putting pressure on buyers to increase their offer when a property has yet to reach the reserve price.

“Upping your bid during the auction is bidding against yourself,” Stier says, and the additional activity could encourage other buyers to re-enter the competition.

“I’d rather negotiate after the auction when you get a clearer picture of what the reserve is … and it takes some of the emotion out of it because you’re no longer on the [auction] floor, and the other parties have usually walked away,” he says.

Bakos, too, says the highest bidder should hold firm, with the exception being if a vendor bid is made. If a property passes in on a vendor bid, other parties can negotiate afterwards, so buyers should look to top a reasonable vendor bid.

Be prepared to let a property pass in if vendor expectations are too high

While some vendors are adjusting reserve prices mid-auction, others are holding firm on 2021-level expectations, resulting in properties being passed in.

“Many properties are passing in at auction, but they are selling straight after,” says Pabst, so buyers should prepare for a pass in and have a strategy in place.

“First, you have to ensure that the property passes in to you,” he says. “If that happens, you have first right to deal exclusively with the vendor at the price.”