When it comes to auctions, there are all sorts of ‘strategies’ people use to gain an upper hand. Let’s have a look at some of the most common ones and see if they work.
What doesn’t work
First let’s have a look at the auction strategies you should avoid:
Go with your gut instinct on auction day. This is a bad idea. Winning an auction is really down to one simple thing – you need to be willing to spend more than everyone else. Working out how much you want to spend is something that you must work out before the auction. There’s not much that happens during the auction that is going to factor as a variable in determining the price you are willing to pay, so don’t go with your gut – leave your emotions out of it.
Hide at the back of the crowd or behind a tree. This won’t do you any favours – in an auction it pays to have at least some presence. Hiding from view will at best make no difference, and at worst will give an impression of weakness.
Wait until the last second to enter the bidding. There’s some merit in not entering the bidding too early, although waiting until the last moment possible to get into the action doesn’t necessarily achieve anything. Worst case you time it wrong and miss out all together, best case you don’t achieve anything.
Dress to impress or drive a fancy car. Everyone knows that you can’t judge a book by its cover – and that applies to auctions too. The wealth of someone or their purchasing power isn’t dictated by what they wear or drive. Let the numbers do the talking. If you come to the table for more dollars than they do, then the property is yours.
Wacky bids. $724,560? What’s that going to achieve? Don’t bother with bids like this – it won’t do anything apart from make you look silly.
What sometimes works
Ok, so maybe there’s some merit in giving these auction strategies a go:
Don’t bid until the property is on the market. Some people swear by this rule, and it makes sense. Why would you bid on something that’s not yet for sale? At the start of an auction the agents will be looking anxiously for that first bid to get the process started and build momentum. Don’t play into their game – it’s in your best interests to reduce any artificial or built up interest in the property. One thing to keep in mind – if the property looks like it’s going to be passed in and you want a shot – by all means, now would be the time to throw out a low bid and at least give yourself the chance of negotiating with the vendors.
Set your limit at an odd number. Most people will value a property and set their limit in round numbers, for example “$750,000” or “$620,000”. If you do your research and find that a limit of $700,000 is the most you would pay, consider adding a few thousand to this – $703,000. Some of the time, this might be the difference between losing out on the property and winning against another bidder who had their limit at the round number of $700,000.
Say the full amount of the bid. Partly psychological, clearly stating the full amount of the bid each time can ensure the reality of the cost to purchase the property is known to all bidders. It also establishes your confidence.
What auction strategies work
So what strategies work? Preparation and keeping things simple are key:
Bid aggressively and confidently. As soon as someone bids against you, bid again right away. This is one of the few strategies that can help you during an auction, because it achieves two important things: it only projects one thing to the other bidders – that you are serious about buying this property, and doesn’t disclose any information whatsoever about how close you may be to your limit. It also allows you to gauge the strength of other bidders. If they aren’t prepared or are reaching their limit, they may begin to hesitate or quietly discuss amongst themselves their next bid. This gives you a good idea they are nearing their limit. If you are still within budget, then continue sending the ball back into their court until they truly reach their limit.
Make a strong bid early to knock everyone else out. There is some merit to the idea of putting in a strong bid to clear out the bargain hunters from the serious buyers. If a significant bid can knock a few people out of the bidding completely, then this might have the effect of slowing down perceived momentum. When doing this, always keep some room between you bid and your final price. This gives you a chance of getting the property for the best price.
Understand the market. Who said that winning the auction is the best outcome? You need to understand the value of the property and determine if it’s a good buy for your circumstances. This particular auction might be red hot – you don’t know the circumstances or the other bidders, but if you’ve done your research then you’ll know if it’s getting too pricy.
Have a limit and stick to it. Being successful at an auction is also about knowing when to let it go. You can’t let emotions get involved here and potentially influence such an important decision. If you’ve done your research, you will know the maximum amount you would be willing to pay for the property, taking into account the market, and the value of the house dependent on your circumstances. Know your limit before the auction, and be disciplined to stick to it – it will prevent a potentially costly mistake.
Understand the auction process. If you’re new to auctions it’s very important that you familiarise yourself with how auctions actually work in your area. As far as a strategy goes, this is one of the simplest ways to avoid a costly mistake. You need to know how to make a bid, what your bid means, the deposit required, and everything else to do with the process!
Basically you could summarise a successful strategy in three points:
- Know what you want, and how much it’s worth.
- Understand the process.
- Be confident, know your limit, and stick to it!
Apart from that, the numbers will do the talking and whoever is willing to pay the most will win. Good luck!