Dangerous Auction Traps
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What is the main topic discussed in this episode?
It's The Real Estate Podcast brought to you by Ray White, the largest real estate and property group in Australasia. And welcome to another episode of The Real Estate Podcast. We're talking to Veronica Morgan from Good Deeds Property Buyers. Welcome to The Real Estate Podcast. Thanks for having me. Great to have you back on. And we're going to look at buying a property in an auction situation for the buyer
What are the dangers of buying property at auction?
Auctions can be a real nightmare to encounter, especially the emotional buyer compared to the investor buyer. So maybe the first thing we should look at is how to set your bidding limit so that you don't overspend.
That's such a good question. You know, I go to auctions both to bid and also for sport effectively because I just find them fascinating. And the amount of times you see people that are bidding really confidently and then I think, wow, they've just got it all going. They've really got deadpan faces. They're scaring everybody off. But the minute they hit their limit, they really – They show everything and they give the whole game away. And then they keep bidding, you know. So they haven't really set their limit. They've just set a limit of what they'd like to pay, not what they would if they had to. And that is an absolute critical difference with the way most buyers go to auction versus the way I would go to auction or the way I would encourage a client or one of our students in Homebuyer Academy.
In order to set your limit, I talk about four pillars, right? First is you've got to understand what the property is worth in the current market. So you do need to do your comparable sales analysis and work out really where does that property sit in relation to everything else and how unique and scarce is it? How good is it as an asset and how hotly contested would that be versus something that might not be as good an asset? And so you're sort of trying to apply a real objective lens to it And then on the subjective side, you've got to look at, well, how uniquely does it suit your needs? And how long are you likely to have to wait for something else that's going to suit your needs as well as this particular one?
So therefore, will you push yourself harder for this one than you would for something else? And then lastly, of course, the other subjective pillar, if you like, or the corner of this is that you do have to look at your limit. And that's subjective to you because it's your budget. It's what you can afford. And when you sort of consider those four elements, you really need to stress test that before you go to the auction, before you're under the pressure of an auction, before FOMO is rampaging on your brain. You need to actually think, okay, a push come to shove. What would I pay if I had to? Because that's the price you need to have in your head. You know, what price will I walk away from this property?
How can buyers set a bidding limit to avoid overspending?
I know I won't want to, but what price will I? If you have that in your head before you go to auction, you will be a lot better at bidding at auction and you will be more successful than if you go there with the limit being what you hope to pay for it.
And auctioneers, if you actually look at an auctioneer, they're highly skilled, they're highly trained individuals. And what is on the surface might not necessarily be flushed out underneath in terms of what the buyer needs to know. So perhaps we could step through a few things that the auctioneer does that will make you bid more when maybe you don't want to.
I've seen some amazing, you know, mastery in this, you know, with some auctioneers that they role play and they practice and they do dialogue and they're like, you know, they're on autopilot when they're up there. They know how to read a room. A buyer is completely unmatched for that. Nobody prepares to the same extent that an auctioneer does. So I watch them. And one of the things that they will do, for instance, is to make it look like it's going to be sold well before the reserve has been hit. And they do that by you know, calling going once, going twice, going three times, right?
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