Ep 31. What no one tells you about Auctions
Are you looking to buy your dream property in 2023? In this episode, Michelle gives her top tips for attending an auction.
Here’s what you’ll learn from today’s episode:
Why it’s important to do your research prior to auction
Why having a good relationship with your local agents can help you at auction
Buyers to look out for at auction
How to show up confidently during an auction
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
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Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
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VIEW TRANSCRIPT
Hi, and welcome to another episode of the Buy Your Side podcast, the property podcast to help you make smarter property buying decisions. My name's Michelle May, and I am the principal of Michelle May Buys Agents here in Sydney. Now, before I sign off for the rest of the year, I just wanted to run you through some recent auctions I went to and perhaps you can pick up a few tricks of the trades if you like.
The first auction I went to was for a young couple. It was a two bedroom townhouse in the Inner West of Sydney, and we had been following the campaign closely. There was no opportunity to buy the property prior because it was not quite a deceased estate, but the mother was going into care and her daughters were selling the property. So usually what we find when there is more than one party involved, as in the people who may get the proceeds from the sale, agents tend to want to run it to auction because when there's money involved there tends to be disagreements and it just makes the process a lot harder to decide whether they can all agree on taking an offer prior, so that was the case here as well.
The property was going to auction and we had seen the property before it even came on the market. So we had been sitting tight for a very long time. And when it came to auction day, we had done a lot of preliminary work. We knew what the true value of the property was, which was quite significantly more than what the agent had been guiding.
And we also knew that there were likely going to be four or five other parties there on the day. I'd been talking with the agents and sort of asking them what's the buyer profile of these other buyers? Because it's really important to suss that out before you actually show up. And most agents are happy to chat about who your competition might be. So definitely a good question to ask: who else is going to be there? Because that might determine how you are going to bid on the day.
So in this case it was predominantly first home buyers. With that comes a sense that they may never have been to an auction before. They would be extremely nervous, unsure of how it all works, so that can work to your favour. The other party that was highly likely to be there was the bank of Mum and Dad. Now, if you haven't heard that term before, oh, I always fear the bank of Mum and Dad coming to auction. That and empty nesters because they tend to be of a certain age and they have grown up kids who are probably taking their first step onto the property ladder, and obviously they're going to use their buying power to help their darling daughter or son on that ladder.
They probably have a lot of equity in their own home, potentially the boomer generation. So they have a lot of firing power at auction. With that also comes ego, and I hate to say it, but it's definitely true. You can definitely tell, it's usually the dad who ends up bidding for their child, and you can see it in their eyes, no one is going to take away this property from my child. And so you have to be very determined and very strategic in how you approach this. So having said all that, I registered at auction. I was the first one there, and made sure that I watched the registration table to see who was actually registering and showing up. Very important.
With that also comes a little sense of, I hate to say it, but me sussing out the competition, and them seeing me at an auction, it makes them feel a bit uneasy. Because I do know all the agents and we have chats and I know all the auctioneers, so it's a very friendly atmosphere and they usually wonder who this person is. So using a buyer's agent who has been in the industry a long time, if you're considering using one for auction, that is one of the things that help you be in a more prominent decision to get this across the line. Okay? Because it's all about sussing out the competition. So watching everyone register, very important part of your strategy, sussing out who's there with their parents. Do they look nervous? Do they look confident? And then when it comes to bidding, make sure you put yourself in a position that you can see everybody, but also they can see you. Again, this is about a little bit of intimidation, showing that you're confident and ready to go.
So when it came to this particular auction, we knew the agent had been guiding light on price. So I said to my clients, “Look, we are going to make the opening bid.” And by doing that, what we're doing is setting the tone and the pace of the auction. And hopefully with this opening bid, we will knock the vast majority out of the water. When you know a property has been quite greatly underpriced, underguided, it's always going to sell for its true value anyway. If there's more than two people at an auction, you know it's gonna be competitive. So there's no point in starting at that really low guide because when people put in a couple of bids, they'll start to gain confidence. They'll start to get emotionally involved, and it becomes like this race that everybody wants to finish. By making a big opening offer, you can knock the wind out of their sails immediately and it's like, oof, I'm out.
So, in this particular case, the property had been guided at $850,000. I had priced the property between $1.1 million and $1.2 million based on the comparable sales of other properties that had sold in the area recently. So I opened the auction at $1,015,000. The reason I did that was because I knew having worked with so many buyers, that most buyers would have a psychological barrier at $1 million. Firstly, because a lot of lenders will be capping you at that point. But also $850,000 plus 10% sort of puts you in the $900,000’s, a bit of competition puts you at $1 million. So by putting it at $1,015,000 I knew that many of them wouldn't be able to recover from that.
So I did that and I could see everyone's face and they all went, “oh”. I could see that they were out. However, the bank of Mum and Dad was still there. The auctioneer went inside to talk to the vendors to see whether the property was on the market and yes, it was on the market, so that meant it would be selling on the day. If no one else bid more than my $1,015,000, it would be my client's property.
The agent went around the room checking with everybody whether they wanted to place another bid. Everyone said no, except for the bank of mom and dad. And I could see them from the corner of my eye, they were discussing. To me, when a couple at auction starts talking, I know that they are probably already at their limit or close to their limit. So whatever extra money they come up with won't be a lot. That's very important to know.
Secondly, one of the things that I do at auction is bid random numbers. Firstly, because it makes people think you're a little bit crazy. What am I going to add? And secondly, it takes the pace out of the auction for the auctioneer because an auctioneer likes sort of doing the, “and another $5,000 and another $10,000 and another $20,000”. Again, it sets that pace of the auction, they're in charge of the auction and people bid without even thinking about it. By having odd numbers, people have to calculate how much extra they want to add, and by doing random increments, so at one point you might add $7,000, at one point you might add just $1,000, and then you add $15,000, for example. By not naturally decreasing the number, the closer you get to your top limit, they never know where your limit is. Very important.
So I was at $1,015,000. The bank of Mum and Dad added a couple of thousand dollars. I then quickly, almost before they finished saying their bid added $3,000, and then they came back with $1,000 and then I added another. So we were at this point, at $1,025,000 and it was their bid, and then it was my turn. And I thought, okay, well this has the potential to keep going because I can see Dad getting a little bit annoyed with me and he is gonna keep adding little, little bits, so I need to stop him in his tracks. So what I did was at $1,025,000, I added $6,000. So I went to $1,031,000 almost immediately, as soon as the words had left his mouth. By doing that, I showed my dominance in that transaction. So almost to say, look, you can keep adding, but I'm gonna keep going no matter what you do. And with that, they were out.
I actually saved my clients because they gave me a little bit over $1.2 million. I saved my clients a ton of money by doing that and I'm so happy for them because it's the perfect property for them.
But what I'm trying to show you with this is that not every auction is the same. Every auction runs differently and with this example, it is really important to do your preliminary research. Who is going to be there? What is this property actually worth? We picked up a bargain essentially, and my clients now have extra cash to do the renovations, which is wonderful. And don't be afraid to make that big opening offer where some people might think you're crazy, but actually you've done your research and you know it's going to end up there anyway, it was always gonna end up over $1 million because if it hadn't, the property wouldn't have sold and the family would simply have kept the property and rented it out. So don't be afraid to be bolshy. As long as you've done your research and you know that's definitely worth it because by doing that, you're knocking out those people who emotionally will get involved and bid beyond their means, and then you might lose it for a $1,000.
So if you have more questions about doing auctions, by all means get in touch. We bid on people's behalf all the time. And our auction success rate sits currently at around 80%. That's no accident, it's because we do a lot of research. We watch people at auctions. We go to other people's auctions as well, just to learn more. I mean, you never finish learning. I think that if you think that you know it all then, hmm, you're probably a bit more stupid than you think. Gosh, I'm very opinionated today. That's just one example of an auction. I have so many more auctions to talk to you about, but, maybe this one has given you enough food for thought for now.
In the meantime, thank you so much for all your support this year and listening to the podcast, spreading the word. I hope it has helped you buy a better property, made smarter decisions along the way. Thank you for all your questions also.
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I hope you have a wonderful, wonderful Christmas break. Be safe out there and keep doing your research okay? Christmas time is a great time to check out the real estate websites. Get yourself signed up to all the real estate agencies for the new year, because let me tell you, there's plenty of off market stuff still happening, and you might miss it because you haven't been paying attention. So keep up the good work. I hope you buy wonderful property in 2023. If you have questions, let me know and I'll see you on the other side.