Knowledge is the weapon of mass destruction when it comes to effective bidding.
If you’re unsure of the home’s likely selling range AND you rely on the selling agent to give you that information then you are, at best naive and at worst, irresponsible with your money.
You must do enough research to be confident. It’s important you are attending the auction to buy because you can actually afford to bid. Your estimation of what similar homes have sold for should also be reasonably accurate.
Many people do more research for a plasma TV or a car than they do when buying a home!
“The time and cost of basic research can pay handsomely. Obtain the sales details of similar homes in the area.”
– Neil Jenman, real estate monitor and consumer advocate
One of the tactics used by auction agents is known as bait pricing. They suggest you can buy at a certain price, nearly always below market. The idea is to get you to attend the auction AND bid.
No piece of theatre (yes, that’s right, auctions are a type of street theatre) is complete without an audience, even if it’s the neighbours and the soon-to-be disappointed.
Now you’re armed with the knowledge, it’s time for the opening bid…
If you want to buy a home….
Best tactic number one is to open high (don’t faint…not too high, but high enough to make you uncomfortable). The reason is simple…
Your competition will faint (they probably don’t have the knowledge). It also takes away the theatre of continuous bidding from the auctioneer.
What’s that I hear you say? What if they sell the home cheaply? When was the last time you were at an auction and it went cheap? If a home doesn’t achieve what is at the very least fair, the agent will pass it in. The owners research the market, decide on a reserve and as a matter of human psychology, usually want more than the buyers wish to pay. Therefore bidding low only starts the performance by the auctioneer and engages the crowd. Don’t play!
How high? My rule of the thumb is this…
If you were rung at 7:00pm the night before the auction and asked to submit an offer because the house was to be sold, what would it be?
That offer price, less maybe a few thousand, is the opening bid. Remember the goal is first to buy the home, second to get it at the best possible price.