Purchasing at auction: Is it a good thing for investors?

Traditionally, auctions are a sellers’ tool. Think about it: there is one property, with ten, maybe twenty interested parties, all clambering over one another to secure it. This means the odds are not stacked in the buyer’s favour!

Unlike buying a home to live in, investing in property is a numbers game, which means you need to take a level-headed, logical approach to balance the cost of the property, maintenance and other expenses with the potential rental return you’re likely to make.

When you’re buying a property as an investment, the emotion-charged atmosphere of an auction is the polar opposite of this strategy!

It’s so easy to get caught up in a bidding frenzy and let the adrenaline take over, and before you know it, you’ve committed to a purchase that’s well outside your price range. So, what are the alternatives? What are your options, as an investor, if the property you’re interested in is due to go under the hammer?

Negotiate a sale prior to the auction

While some vendors won’t be amenable to settling prior to auction, it’s still worth making an offer, just in case. Depending on how the market is faring, the level of interest in the property, and the vendor’s reason for selling, you may be in luck.

Talk to the agent and try to tailor your offer to make it more appealing to the seller – perhaps by offering a shorter or longer settlement period, depending on their circumstances. Do some research, so you’re familiar with the local market and recent auction results for similar properties, prior to making your offer.

Be careful not to over-inflate the vendor’s expectations by making a high offer straight away, as this could lead them to believe they can achieve an even better price at auction, or even upping their reserve. Rather, look at the number of comparable properties on the market, the length of time they’ve taken to sell, and the auction clearance rates, and use these to your advantage when negotiating.

If the market is flooded with similar homes, you stand a good chance of convincing the vendors that selling to you prior to auction is going to be the less stressful option for them.

If you do decide to bid at the auction

Make sure you’ve done your sums well in advance of the auction day, and have written out the various scenarios so you know where you stand. Be firm on your bidding limit, and don’t go over it under any circumstances. Remember, this is an investment – it’s not destined to be your family home. There will always be another suitable property you can buy-to-let, so don’t allow yourself to be dragged into a bidding war with that other couple who’ve decided this is their dream place to raise a family, only to drive the price through the roof.

Paying a premium for an investment property can have disastrous consequences if the market drops, and you won’t be able to ride out the storm in the same way a long-term owner-occupier can.

What if the property you want is passed in?

If the property fails to reach its reserve price, this could be your chance to swoop in and grab a bargain! If you have the highest bid when the property is passed in, you’ll have first rights to negotiate when the auction concludes.

The vendors are probably feeling a little disappointed, and may be more willing to compromise than they had been prior to their auction dream falling flat. To have the best possible chance of successfully snapping up a passed-in property, be sure to have your pre-approval organised and your deposit ready to go. If possible, being flexible on terms, such as the settlement date and other conditions, may also help sway the sellers.

What if the property sells… to someone else?

You simply move on. It can be difficult moving on from a property you have become attached to, but it’s also an important lesson – because successful property investing is less about the bricks and mortar, and more about what your investing vehicle (aka property) can do for you and your wealth.

There are always more properties, so don’t despair, and instead start researching your next investment opportunity!