# Buying a property at auction



## skc (6 August 2013)

I am looking at upsizing our PPOR (in Brisbane) and there's a suitable candidate on the market that's due for auction in 3 weeks. I am doing some research on recent sales etc but I'd like to hear story about people's experiences and tips (of course there are plenty on the internet as well) about buying at (or pre-) auction.

A few random notes:

- I really have no emotional attachment to this house. Yes it suits our requirement but so does another 3-4 on the market. I am interested in paying fair value (although I'd be happy if it's a bargain as well), but with zero FOMO. I wonder if being a share trader has something to do with it 

- The property doesn't really have a price guide. It is a newer (8 yrs old), larger and better conditioned home than most homes around the neighbourhood. I wouldn't say it is over capitalised (I am guessing the building cost was probably only 1.2-1.3x the land value), but many of the older houses (~25 yrs) sell below replacement costs anyway. This house will certainly be in the top 3% price-wise for this particular suburb. I don't particularly want to pay more than 30% above the median price for the area - but I wonder if this rule is helpful or not...

- I am not adverse to buying pre-auction. I have read about the pros and cons of doing such, and the seller's agent has advised that they will accept offer if such offer is unconditional before auction date. Any other considerations from those who's been through the process?

- The house is in a suburb that has a lower median price, but the location of the house is closer to an adjacent suburb with a much higher (~20% higher) median price. Obviously this works both ways as buyer will argue for a cheaper price while the seller will argue for a higher price on the same fact. Anyone with property experience knows how this kind of situation tend to work out? 

Thanks in advance.


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## CanOz (6 August 2013)

SKC, i would be very grateful to see how you go with this. We're thinking of Brisbane (among a few others) as a location as well. Curious to see what happens at auction and how many you see get passed in.

Good luck!


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## ROE (6 August 2013)

I been to a few auctions if you like the place and have a set price ..bid hard and fast don't go by a thousand or two because that let the other person come back with another $500 and $1000 and before you know it they drag on for 15-20K without the impact

say the house price $800K and they start $600K bid ...I go in $650K $700K $740K etc...

go to a few auctions now and then in that suburb and see what price people prepare to pay..


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## tech/a (6 August 2013)

Hmm done a few in my time.

Firstly if your going to bid pre auction then you'll rarely get a bargain.
You'll need to be over the reserve to secure it. I've only done this twice and been successful both times as I was looking at the property from a developers stand point not a PPOR. 
At 8 yrs old this isn't going to fit that category so chances are it wont sell pre auction.

Once registered see how many are registered bidders.
Have your set "Valuation" and remember the best deals are done when a property is passed in.
If they are going to pass the property in as the reserve has not been met AND you want the property
make sure you have the last bid.

This will give you the opportunity to be the only one dealing with the vendor with the reserve price being disclosed to you.
At that point you are in the negotiation phase with the vendor and you now know how far apart you and he are.
You now have the upper hand.
He doesn't know what your top offer is and you know his reserve.

Keep negotiating under the reserve ---because now you can---and you may get a great buy at or below the reserve.
If the reserve is over your limit and you walk away then the house returns to a normal sale.
Keep an eye on it.
Again you know what the reserve was and it will be listed in a price range.
Coming back to make an offer in a few months time often sees a vendor who has mellowed.

You mentioned that this house is in the top sector for the suburb.
My view is you'll not have to contend with bargain hunters or my kind.
It will be Joe public.
Often a quick high bid at the end of the auction (Usually your first) will halt Joe public in his stride.
(If in your price range)
So EG
If they are taking $1000  or  $500 bids.
Put in say an $8K bid (If its in your range)
Its got to be powerful and your first.
This generally leaves you on your own.

Above all dress very well and look very confident.(Not cocky--but experienced).
Stand to the front and at the side--turn to face the majority of those bidding even if your back is to the Auctioneer. Wear sunglasses. You can then watch to see who you are against. Single bidders who don't have another to chat with are generally the most experienced. You'll see how stressed they become or how excited they are if the hammer has dropped twice---your Que to get serious! Try to show no or little emotion and stay reasonably still.

Finally if it reaches your figure simply walk away and don't give it another thought.

Good luck Id love to be in your shoes--I love auctions particularly the negotiations after auction.
If it goes there be empathetic and get the vendor to like you---human up! Take your time,the more relaxed and calculating you are the more likely you'll broker a great deal.


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## CanOz (6 August 2013)

Sheeesh Tech, great post....

you sure you don't play poker?


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## tech/a (6 August 2013)

CanOz said:


> Sheeesh Tech, great post....
> 
> you sure you don't play poker?




Thats the other guy!


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## payday (6 August 2013)

Do all the checks as well - building inspections etc. Not worth cheaping out on this especially if you are going to live in it as I find that it is often the little things (like roof leaks etc) that become major headaches and expensive ones down the road.


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## CanOz (6 August 2013)

payday said:


> Do all the checks as well - building inspections etc. Not worth cheaping out on this especially if you are going to live in it as I find that it is often the little things (like roof leaks etc) that become major headaches and expensive ones down the road.




Yeah, great point. This saved me a heap when we bought a place in Ballarat one time. You don't want any surprises later. A good inspector is really worth the money.


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## Gringotts Bank (6 August 2013)

skc said:


> I am looking at upsizing our PPOR (in Brisbane) and there's a suitable candidate on the market that's due for auction in 3 weeks. I am doing some research on recent sales etc but I'd like to hear story about people's experiences and tips (of course there are plenty on the internet as well) about buying at (or pre-) auction.
> 
> A few random notes:
> 
> ...




Did you select your wife by ticking off boxes on a 500 point checklist?  No.

This is your potential *home*, not a "PPOR"...   If you like it, bid hard and buy it.  Geeez.


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## tech/a (6 August 2013)

CanOz said:


> Yeah, great point. This saved me a heap when we bought a place in Ballarat one time. You don't want any surprises later. A good inspector is really worth the money.




8 yrs old??

As for the wife one should be* far* more careful!!


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## CanOz (6 August 2013)

tech/a said:


> 8 yrs old??
> 
> As for the wife one should be* far* more careful!!




Nah it was twenty...yes, i realize SKCs is 8, but none the less its good advice for older homes. I'd do it for anything over 5, you never know what secrets it might reveal. Its like $500


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## tech/a (6 August 2013)

CanOz said:


> Nah it was twenty...




SKC's is 8.


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## Gringotts Bank (6 August 2013)

What I'm saying is, you don't buy a home the way you'd buy shares.  And you don't buy a home the way you'd buy an investment property.  You buy a home the way you'd choose a woman to live with.

If you overspend, big deal.  If it's overcapitalized, big deal.  If it needs work, then you do the work.  The only important thing is that you like it and you feel comfortable living with it.


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## tech/a (6 August 2013)

Gringotts Bank said:


> What I'm saying is, you don't buy a home the way you'd buy shares.  And you don't buy a home the way you'd buy an investment property.  You buy a home the way you'd choose a woman to live with.
> 
> If you overspend, big deal.  If it's overcapitalized, big deal.  If it needs work, then you do the work.  The only important thing is that you like it and you feel comfortable living with it.




Agree.
I built my PPOR and it ticks most of your boxes!


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## skc (6 August 2013)

CanOz said:


> SKC, i would be very grateful to see how you go with this. We're thinking of Brisbane (among a few others) as a location as well. Curious to see what happens at auction and how many you see get passed in.




The auction clearance rate for Brisbane was <40% last weekend. http://www.rs.realestate.com.au/cgi-bin/rsearch?a=ars&s=qld. Although I think it's a reflection of the fact that auction just isn't that common in Brisbane, rather than the state of the market.



tech/a said:


> Firstly if your going to bid pre auction then you'll rarely get a bargain.
> You'll need to be over the reserve to secure it. I've only done this twice and been successful both times as I was looking at the property from a developers stand point not a PPOR.
> At 8 yrs old this isn't going to fit that category so chances are it wont sell pre auction.




If I do make an offer pre-auction it'd be near the bottom of my valuation range. Looking at the auction clearance rate, the fact that the house is at the upper end of suburb, and how I don't really care that much if I don't end up buying it, I am more than happy to have my offer ignored and the property going to auction.



tech/a said:


> If they are going to pass the property in as the reserve has not been met AND you want the property make sure you have the last bid.
> 
> This will give you the opportunity to be the only one dealing with the vendor with the reserve price being disclosed to you.




Good point. Although I only become aware that, negotiating with the higher bidder exclusively in NOT a law or anything like that, but just auction etiquette.



tech/a said:


> You mentioned that this house is in the top sector for the suburb.
> My view is you'll not have to contend with bargain hunters or my kind.
> It will be Joe public.




Agree. And thanks for all the other tips like where to stand at an auction...

Two other funny thoughts I am developing wrt to buying property:

- Since each house is unique in terms of location and characteristics, it only takes one buyer willing to reach up too far for the house to become overpriced. It's not like shares trading where, if one buyer got too excited, the sellers will come in and bring the price down to equilibrium quickly.

- Valuation of a property is probably even more of an art compared to valuing a stock. And truth is, most people value property using "technical analysis" than anything else. That is, you look at what happened in the past (sale history for similar houses in similar areas for the last X months) to gauge the present. 



payday said:


> Do all the checks as well - building inspections etc. Not worth cheaping out on this especially if you are going to live in it as I find that it is often the little things (like roof leaks etc) that become major headaches and expensive ones down the road.




Yes although I am not going to do this unless I know I want to really go for it at auction. I am going to sound out a bit with a pre-auction offer (which is conditional on building inspection). If I get the feeling that the vendor is expecting too much, the auction will most likely pass in and I won't do an inspection before the auction. I think spending money before the auction causes some people to lose their cool during the bidding. I know it sounds silly as $1000 spent in solicitors / inspections is nothing compared to the sale price - but it's amazing what a tiny sunk cost can do to some people.



Gringotts Bank said:


> Did you select your wife by ticking off boxes on a 500 point checklist?  No.
> 
> This is your potential *home*, not a "PPOR"...   If you like it, bid hard and buy it.  Geeez.




I assume you are only kidding right? Firstly I dated my wife for a long period of time before she became my wife. So unless I get to live in the house for some time before I buy, then of course I am going to do my due diligence and work on that checklist... plus it's a completely irrevalent analogy anyway.

As to *home *vs PPOR... my home is where my family enjoys the love and care of each other. It will happen regardless of where I live or how much the property cost. We make a property our home by living in it and building memories. There is no *HOME *for sale on the market. 

May be that's why I am completely unemotional whether I buy this place or not. And if someone else wants to value it as a home rather than a property - they can overpay for it!


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## odds-on (7 August 2013)

Hi skc,

Interesting funny thoughts, some of my funny thoughts:

1.	A successful trader will have statistics to confirm whether they have an edge over a period of time. How on earth can you work out whether a property owner/investor has an edge if they are only make a couple of transactions a decade (or lifetime)? Property owning/investing is part luck and part skill
2.	The number of parties (properties owners, banks, RE agents, plumbers and so on) interested in property prices going up must create social pressures which subconsciously affect how buyers engage in property transactions - they are setup to overpay
3.	The Average Joe is financially illiterate and to save face people will never admit (or even be able to calculate) their losses
4.	The Price to Rent ratio seems like a reasonable sanity check for property http://www.nytimes.com/2008/05/28/business/28leonhardt.html?pagewanted=1&_r=0

Have fun.

Cheers


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## skc (7 August 2013)

odds-on said:


> Hi skc,
> 
> Interesting funny thoughts, some of my funny thoughts:
> 
> 1.	A successful trader will have statistics to confirm whether they have an edge over a period of time. How on earth can you work out whether a property owner/investor has an edge if they are only make a couple of transactions a decade (or lifetime)? Property owning/investing is part luck and part skill




Agree. I think the only real way to have an edge in property is either buying distressed sales, adding value or developing yourself or really hitting the next sweet/up-and-coming locations. The rest of us are just rising and falling with the overall tides.

I am approaching my PPOR as a necessary expense rather than an investment. I have a particular standard of living that I am looking for, but would like to keep the cost low while meeting that standard.

My current home was bought in 2005 and if I was to sell it now it would be ~140% higher than I bought it. While that might sound pretty good on the surface, it's barely 5% a year. So after finance costs and other transaction costs, the return is basically zero (and probably negative after inflation). If you looked at it from an investment point of view the returns are pretty crap. But looked at it as a necessary expense than I am happy that I get to enjoy a house for 7/8 years at essentially breakeven costs. 

That's the sort of outcome I aim for with the next purchase....


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## Gringotts Bank (7 August 2013)

Maybe you could ask around some of the dodgy lending companies if they know of any desperate sellers.  You know...guys who have hit hard times, lost their job, became ill, spouse has died, whatever... then you can swoop in and clean up.  How sweet would that be!  Imagine how much you would save on your PPOR!


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## skc (7 August 2013)

Gringotts Bank said:


> Maybe you could ask around some of the dodgy lending companies if they know of any desperate sellers.  You know...guys who have hit hard times, lost their job, became ill, spouse has died, whatever... then you can swoop in and clean up.  How sweet would that be!  Imagine how much you would save on your PPOR!




GB I have no idea what you are talking about or where you are coming from? Where did I say I want to swoop in on other's misfortune? I said some people can gain an edge through that... I also said I am interested in paying a fair price.

You seem to have the notion that when it comes to the PPOR, we should throw common sense and financial consideration out the window and let emotion and gut feel drive our decisions. Anyone who applies rationality to such decision must be a heartless snob.


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## Snagglepuss (7 August 2013)

skc said:


> My current home was bought in 2005 and if I was to sell it now it would be ~140% higher than I bought it. While that might sound pretty good on the surface, it's barely 5% a year.




Um, no, that would be around 11.6% per annum, a good return!


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## tech/a (7 August 2013)

> 1.	A successful trader will have statistics to confirm whether they have an edge over a period of time. *How on earth can you work out whether a property owner/investor has an edge if they are only make a couple of transactions a decade (or lifetime)?* Property owning/investing is part luck and part skill




In my case
$s in the bank and properties freehold.

Personally-----Property Owning and making a killing is definitely opportunistic.

For me it was a no brainer.
I could buy positively geared with no $s down IMMEDIATELY and it got better year in year out!.
I just kept buying until I was told I couldn't get any more.

Then started selling those which weren't performing as well as others and free holding the best performers.
From 1996 to Now.

Not hard.---Changed my life.

Built my PPOR with most of GB's wish list.


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## pavilion103 (7 August 2013)

A good example of capitalizing on golden opportunity.

I remember reading books like Steve McKnight's back in 2004 and getting excited only to realize that those calculations and yields were well gone. 

If I was 10 years older I'd be financially free already.


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## skc (7 August 2013)

Snagglepuss said:


> Um, no, that would be around 11.6% per annum, a good return!




Sorry. I expressed it wrong. It's 40% higher, not 140%.



skc said:


> My current home was bought in 2005 and if I was to sell it now it would be *~40% *higher than I bought it.


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## Snagglepuss (7 August 2013)

skc said:


> Sorry. I expressed it wrong. It's 40% higher, not 140%.




Ah, OK. That pretty much matches my home too, probably up around 40% or 50% since we moved in eight years ago.


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## skc (19 August 2013)

skc said:


> Yes although I am not going to do this unless I know I want to really go for it at auction. I am going to sound out a bit with a pre-auction offer (which is conditional on building inspection). If I get the feeling that the vendor is expecting too much, the auction will most likely pass in and I won't do an inspection before the auction. I think spending money before the auction causes some people to lose their cool during the bidding. I know it sounds silly as $1000 spent in solicitors / inspections is nothing compared to the sale price - but it's amazing what a tiny sunk cost can do to some people.




I've been to 2 auctions over the last 2 weekends in a nearby suburb. Both auctions had no registered bidders and the acuction was over before it started. Chatting with an auctioneer, he said that auction in Brisbane is not necessarily used to achieve the sale on the day, but to set an action deadline for potential buyers and get market feedback. Things tend to move quite fast after the property is passed in, and there can be a quicker outcome than going through the non-auction sale process from the started. 

The average auction campaign is ~4 weeks while the average house is on the market for something like 85 days for Brisbane, so if a house is sold within 2 weeks after passing in at auction, it is still a quicker outcome than average. 

Anyhow, the agent has told me the house I am interested in has no registered bidders yet, and no one has done a building/pest inspection. So I'd say there's a very good chance the property will also have no bidders at the auction. From then the seller will likely list the property at a certain price and I'd be happier to negotiate from there. If saves me from making the first move.

I've seen quite a lot of houses in recent times... one house that was passed in last weekend is now listed at ~10% below what I thought was a reasonable price. Another house I thought was listed at 10% higher than it should, ended up selling at that price. Both surprised me a fair bit as I have seen really quite a few houses in those areas and price ranges. This leads me to think that, while there's a "underlying value" for each property, the actual sale price can vary +/- 10% just on how informed and desperate are the buyers and sellers.

For example, looking at sold price history, a property was listed at "Offers above $XXXk+" tend to sell within $2-5k of that price (either above or below), while at property listed at $XXXk could sell 5-10% below that price (and rarely above). Perhaps that's because some buyers were naive enough to think that their offer won't be presented unless it meets the $XXX+ tag? It's amazing how that little "+" makes such a lot of difference.


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## CanOz (19 August 2013)

Interesting SKC, is there a particular web site that you use for Brisbane properties?


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## skc (19 August 2013)

CanOz said:


> Interesting SKC, is there a particular web site that you use for Brisbane properties?




realestate.com.au obviously for current listing but also some sold prices. 

Auction clearance from prior weekend on http://apm.domain.com.au/Research/AuctionResults/

onthehouse.com.au is good for sold prices and historical listing price.

http://suburbprice.com is good for overall suburb inventory and price trends.

Lastly a friend has access to a paid service called Price Finder which can give you as much historical sold prices as you'd ever need.


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## ROE (19 August 2013)

I am looking to upgrade thanks to Mr Market last couple of years 
but I made an informed decision not to buy well after the election end.

Despite what other people said I am convinced house price will slide after the election.
the factors drive last price surge are no longer there apart from low interest
but low interest doesn’t help when people jobs and economy are on the slide...

once election are out of the way, the new government don’t have to deal with voters for
another three years and this is where they going to do some serious policy work.

 people are max out with debt this time not much room to grow the debt pile...
government debt growing and facing structure deficit, mining go into volume production phase,

investment taper off so wage grow won’t be there...more likely wage drop and freeze on pay rise...
so that where I am stand and that where my conviction lies and I stick with my conviction
in Properties and Shares


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## CanOz (19 August 2013)

skc said:


> realestate.com.au obviously for current listing but also some sold prices.
> 
> Auction clearance from prior weekend on http://apm.domain.com.au/Research/AuctionResults/
> 
> ...




You're a legend SKC, thanks!


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## skc (19 August 2013)

ROE said:


> I am looking to upgrade thanks to Mr Market last couple of years
> but I made an informed decision not to buy well after the election end.




Quite possible and imo it's an eachway bet at the moment. Normally with such low interest rates you should see house price spike already... there's some evidence supporting that in terms of auction clearance rate in Sydney etc, but the overall price level and credit growth are certainly moving as fast as the fall in interest rate.

So given how little price has moved on favourable conditions one would suspect opposing forces at work and those are the ones that you talked about. A price spike up is still a distinct possibility but who knows.

For me personally, I will be looking to sell my current house after buying the new one. So the net increase in my exposure to property is well under control. Plus I'd back myself making better return on capital putting those money in shares...


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## payday (19 August 2013)

It's funny how markets differ in capital cities. In Melbourne, where I am, auctions are de rigueur. Speaking from personal experience (we sold our house about 2 months ago through auction) valuations are hit and miss. We interviewed 4 local realestate agents and they all gave us different values in what they thought our property was worth. From top to bottom the price range was about $100k - mid 6's was the lowest valuation and mid 7's was the highest. My feeling is that some real estate agents will tell you what they think you want to hear so they will give you the highest valuation and others want to try to milk as much commission as possible so they will give a low valuation and then say something along the lines of "but if we sell it over $xxx then I will get a bonus". 
Where I am it is not necessary to register to bid, although the agents often have a good grasp of who is potentially interested based on call backs and the like. After saying that, our agents identified 3 interested parties, but come auction day there were 7 bidders and the last 2 standing showed very little interest in the property - only came to 1 open for inspection and didn't request the contracts for sale etc. 
Also, even though there were 7 bidders, not one person requested a building or pest inspection ( the house is 7 years old) and only 1 party had a valuation done through the bank. So I don't know how strong these indicators are for the market down here anyway. 
And yes - the house sold under the hammer for well above the highest valuation


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## skc (19 August 2013)

payday said:


> It's funny how markets differ in capital cities. In Melbourne, where I am, auctions are de rigueur.




Yes indeed. Like if you said de rigueur in Brisbane you will get a blank look...



payday said:


> And yes - the house sold under the hammer for well above the highest valuation




Nice... definitely agree that the motivations of the real estate agent may not always be aligned with the motivations of those whom they work for.


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## skc (27 August 2013)

Just an update... the auction came and went last weekend and as expected the property was passed in. It received no actual bids but there were 2 registered bidders (of which I was one). I wasn't going to register but after arriving at the auction I was told there's a bidder registered already. So I did register last minute just in case something funny should happen and I'd be in a position to act. 

The auctioneer gave his spiel and made 3 vendor bids. The crowd stayed silent. I was slightly nervous through the process (as I didn't expect any bidders and so was slightly flustered) but my plan was not to bid unless the house is on the market within my valuation limit. But obviously the vendor bids were below the reserve price so the property was never on the market during the auction. The highest vendor bid was already slightly above my valuation limit, so I didn't bother putting in a highest bid to get an exclusive negotiation right. 

That same afternoon I put in an offer 2.5% below the last vendor bid. After a bit of discussion around terms and conditions, the agent informed me that there's another offer coming in, and asked me to put my best foot forward. I increased the offer by ~1%. But by this time I have already mentally moved on. I liked the house but the location (in terms of access to amenities, parks etc) is at best 4/10. So I wasn't willing the increase my offer anymore.

The agent later informed me that the seller has rejected my offer as well as the other offer, and he told me that the other offer was 3-4% higher than mine. That higher offer was not a price that I am willing to pay, so we are not going to be buying this property. I wished both the agent and the seller good luck and that's the end of that. 

The property has only been on the market for 5 weeks so I think the seller is looking for something that's 7-10% higher than what I've offered. I don't think I've under-valued the house, nor do I think the seller is being overly optimistic. House valuation is an art and the difference between my offer and the seller's asking price is probably the range that a few different property valuers would come up with. The way I see it was... having looked at some of the sold prices in arguably better locations for comparable houses, I'd rather have those houses than this one at that price. So I simply have to wait for the right house to turn up...

P.S. I think it would be nice to see more threads/posts on the ASF sharing house buying/selling/building experiences. I think they are interesting stories to read and I must admit I learned a fair bit about the process and people's thinking in some of the other forums just in the last few days. Much of the other information I've seen are from bodies with somewhat vested interests (like REIQ) and just doesn't have that personal touch to it.


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## burglar (28 August 2013)

skc said:


> ... I think they are interesting stories to read ...




I love an auction, but it is not everyday that I want to buy a property.

I was at a house auction in the seventies.
The National Australia Bank had just raised the interest rate to an all time high of 17%
It was headline news in that morning's Advertiser.

A few people turned up.
Among them was my Father-in-law.
He stood behind me.

At the end of the proceedings, he tapped me on the shoulder.
Then he said, "You've just bought a house!"


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