Buying a property at auction

[skc]

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.

 

[CanOz]

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!

 

[ROE]

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..

 

[tech/a]

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.

 

[CanOz]

Sheeesh Tech, great post....

you sure you don't play poker?

 

[tech/a]

Sheeesh Tech, great post....

you sure you don't play poker?

Thats the other guy!

 

[payday]

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.

 

[CanOz]

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.

 

[Gringotts Bank]

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.

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.

 

[tech/a]

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!!

 

[CanOz]

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

 

[tech/a]

Nah it was twenty...

SKC's is 8.

 

[Gringotts Bank]

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.

 

[tech/a]

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!

 

[skc]

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.

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.

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.

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.

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.

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!

 

[odds-on]

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

 

[skc]

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....

 

[Gringotts Bank]

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!

 

[skc]

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.

 

[Snagglepuss]

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!