Rachel Grunwell is a fitness writer for the Herald on Sunday.

Auction tactics: Strategies of successful bidders and sellers

Auctions are popular when the property market is as hot as it is in Auckland. Rachel Grunwell talks to auction survivors and industry experts about auction mentality and winning tactics.

Bidding is more sport than science, says auctioneer Mark Sumich. Photo /Doug Sherring
Bidding is more sport than science, says auctioneer Mark Sumich. Photo /Doug Sherring

My husband Damien reckons when he went to his first auction he made sure he had the final bid just so he wouldn't have to repeat the experience again, ever. It was one of the most nerve-racking moments of his life. From the outside, he was calm but his heart was racing. And that was before the auction had even kicked off.

He had a limit but, of course, he threw that out the window. He says he could sense the rival bidder "was at the end of his rope" by the defeated look on his face and increasing hesitation with bids. Poor bloke.

But when the hammer signalled Damien had the winning bid ($8000 over his intended limit), he reckons he just felt "shock". Later he was relieved.

New Epsom home-owners Annabelle and Adam Tyrie recently moved into their stunning five-bedroom home with a beautiful backyard and in top school zones. It's their dream home but the three years it took to get to this point were "stressful", admits Annabelle.

They were seriously out-bid at five auctions. At one, bidding went so fast Annabelle likened it to "being on a roller coaster that you want to slow down, but you just can't get off". She says big money is involved and it is hard having to bid "so quickly". Adam laughs that "you spend longer buying a shirt". At one of their first auctions they agreed their top limit, but when the auction started at this amount it floored them.

They finally got their dream home because they learned to be strategic and beat the auction process. The Epsom house had barely hit the market when they quickly did their homework and put in a good pre-auction offer, which resulted in the place going for tender. They secured the top offer.

Annabelle says they were deliberately quick to put in a pre-auction offer "before anyone else had the time to do their homework on the house."

Adam says they wanted the place so they offered a fair price to secure it. They had watched the market so knew what the house was worth. And it was also worth the price they paid because it had captured their hearts. The couple then sold their Mt Eden bungalow at auction, after three-weeks' marketing. Annabelle says the trick is to "grit your teeth and get through" the lead-up time. They then reaped the benefits of having competing bidders and getting a good outcome.

Another homebuyer, Scott Bower, reckons he secured his spot in Central Auckland by making a large bid near the end of the auction that "stopped everyone else in their tracks".

Award-winning Harcourts agents Charlotte and James Marshall have just bought a larger family home in Remuera, for well above the CV. "We fell in love with it and wanted it. So we had to fight for it at auction," says Charlotte. A tactic they used to secure the property was waiting until late in the auction to bid, when the home had passed its reserve. But she adds that, in reality, auctions are all about "being the last man standing with your hand in the air".

In a little over a week, the couple's Epsom bungalow will go to auction and Charlotte admits to being as nervous as anyone else. "It's no less scary when it's your own house. But we believe in the process."

It's no wonder then that award-winning auctioneer Mark Sumich reckons bidding at auctions is "more sport than science" and people should "expect the unexpected". Mark, who has 26 years' experience in the industry and runs Sumich Estate Agents and Auctioneers, says he still can't pick the winning bid before an auction. It could just as easily be a guy in gumboots or the diminutive lady at the back.

He says he often sees the same faces at auctions over long periods and he wants to tell them, "Be brave. Because sitting back and waiting to buy at low levels is just not going to happen."

He says people should view other auctions before bidding for real "so they're not star struck by it all". He also advises bidders to be "appropriately aggressive", but not overly aggressive. Just appear confident. It might put others off.

He says sometimes it can be good to bid early to try to "dominate proceedings" and perhaps bluff that you want the house no matter what. But other times a bidder might win by trumping a competing bidder near the end of an auction with a high bid "to put the final nail in the coffin".

Supposed tactics aside, Sumich says if you want a house in Auckland you should buy before you sell your current home. This means you will not be forced into buying something just to enable a contemporaneous settlement. Also, with good stock so limited at present, it can take longer to find the home you want than to sell the one you have.

"The key is to buy with an extended date to enable you to go through your selling process without time pressure. It is all about having your home ready to sell when you need to put it on the market," says Mark.

When it comes to selling, Sumich's key advice is secure the best agent who will find several people to compete for your home, ensuring you get a top price. Ignore the company's selling statistics, focus instead on an agents' personal selling statistics (setting aside the mortgagee sales). He reasons some agents "just have much better records than others".

Mark says his job is to put bidders at ease so they feel comfortable to buy. Humour helps, too, so he might be cheeky and use "gamesmanship", such as saying to the current underbidder, "come on, that guy has got his car in your garage ... now what are you going to do about it?"

A seller's guide to auctions

Charlotte Marshall says their Harcourts' Epsom office had a 94 per cent success rate at auctioning properties last month.

She says the auction process is "transparent" and "fair", as everyone can see how the sale is progressing and each bidder has the same chance as the next guy to secure any given home, budget limits aside.

Selling by auction also means the sale is unconditional, so the highest bidder must buy if the reserve has been met.

Auctions also have a quick time-frame, usually three weeks, which creates a sense of urgency, "flushes out" real buyers quickly and, hopefully, results in competition for the home. Houses that sell by other methods usually take an average of 40 days, says Charlotte.

Selling a home by auction removes the price "barrier". Charlotte explains some people might not view a house if they think it is pricey, but if there's no price then they might see the home, fall in love and stretch to pay more than planned.

A misconception about auctions is they cost a lot to run, but the only extra cost is the auctioneer's fee (which is $500 through her agency).

Vendors can auction on or off-site. It's not known which is better, but Harcourts prefers to hold its auctions in a dedicated room at its offices because "it's a controlled environment". There's no risk of proceedings being hampered by rain, noisy neighbours or yapping dogs.

Charlotte says sellers choose a reserve price usually the day before the auction, based on professional advice, buyer feedback, the number of people interested in the house, what is happening in the local market and other variables.

She says all bidders are genuine at auctions because it is unlawful for an agent to "plant" an untrue bidder in a room.

Auctioneers have the right to not accept a bid. If one is too low, for example, it may be declined when the other bidders are comfortably bidding in bigger steps.

She says sometimes an auctioneer will pause an auction if the bidding hasn't quite reached the reserve. They might consult the seller, and recommend the reserve be reduced so they can declare the property "on the market", which can give a renewed boost to the bidding.

A pause may also be used by experienced agents to try to get a buyer and seller to reach an agreed price.

If the home is passed in, your agent can then negotiate with the highest bidder if you choose.

The seller will know what deposit they will get from the buyer before the bidding starts (usually about 10 per cent) and the buyers will have been advised of the settlement date.

Charlotte advises sellers to think of three scenarios: their happy price (the ideal sum they hope for), a comfortable price, and a grumpy price (the price they will sell at, but no lower).

Ultimately, she believes sellers have the chance to get a premium through auction if there is competition for a home.

A buyer's guide to auctions

"Be prepared," says Paul McKenzie, marketing manager for Realestate.co.nz. A winning bid at auction creates a binding agreement to buy that property, so there's no going back if you get cold feet after the hammer comes down.

First, save a deposit and get pre-approval for a bank loan at a level you're comfortable with.

When you find the house you want, it pays to get council and building reports, know valuations in the area and research everything you might need to know about the neighbourhood. Is it in the right school zones? If you need to use public transport, is it on useful routes?

Zoodle.co.nz is a helpful website with a wealth of information about almost every property and neighbourhood nationwide. It includes comparable sales in the area and what the local options are for shopping, schooling and public transport. A basic property description and local market summary is free and comprehensive reports cost up to $75.

A Land Information Memorandum (LIM) from the council costs several hundred dollars and will reveal everything about the property, including rates and any issues with the site.

A building inspector might also unearth any potential issues.

Get a solicitor to check out the Sale and Purchase Agreement before the auction to check for clauses in the contract you might want to negotiate, such as the settlement date or deposit amount.

Make sure you register as a bidder for the property in advance so the agent can keep in contact if someone else makes a pre-auction offer you might want to compete with. If pre-auction offers are permitted, yours may be simply accepted by the vendor, or the agency might have a policy of using it to spark a tender process or an early auction.

Any other interested parties are contacted to see whether they want to compete. While allowing this process might be frustrating to the person making the pre-auction offer, it does cut competitors off at the knees and force them to act when they're not ready. Some do go on to bid but others throw in the towel.

When the auction day falls, tell the auctioneer to look out for you.

Some of Paul's other tips include:

* Give strong and confident bids, making eye contact with the auctioneer. If you are not confident, ask a family member to help.

* Bidding amounts will increase at various levels depending on the value of the house and will be at steps chosen by the auctioneer. But you can offer a lower bid if you like.

* Know your limit and stick to it.

Paul says if a house doesn't reach reserve it will be passed in. The highest bidder is then given the first opportunity to negotiate the sale. Negotiations can include the price and other conditions.

All going well, the auctioneer's hammer will signal you have the winning bid. This means you've made a legally binding contract to buy that property. You'll pay a previously agreed deposit, usually 10 per cent, sign the sale and purchase agreement, and walk away the proud, and relieved, owner of a new home.

- Herald on Sunday

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