While there is no doubt that prices are moving at a frenetic pace in places like Sydney and Melbourne, it’s clear that some buyers are getting caught up in the “fear of missing out” syndrome, paying far too much at auction for properties that have very little going for them.
As a buyers agent I have Valuations performed against any prospective purchase I’m considering. These days however, recent auction prices have been exceeding these Valuations, often by 20%.
It can be difficult to understand exactly how that price can be justified, but too often buyers act impulsively and get swept up in the emotion of the auction room, bidding far above what they were initially prepared to pay.
So how can you avoid getting caught up in the hype of an auction, swept up in a sea of fear that if you don’t get in today, you may not be able to afford tomorrow?
Here are some tips to help keep a level head that could save you from paying far over the odds and years of effort.
Know your game plan before you get in the room
If you’re looking at an investment then it should be about the numbers. However many people recalculate the numbers as the bidding increases, quickly trying to work out if they can afford the property at the new price.
To avoid making costly errors in the heat of the moment, understand where your top limit lies. Write it down on a piece of paper and understand that this is your absolute maximum. From that point you know that you can bid confidently up until that point without losing your shirt.
Don’t get emotional
Easier said than done, but one of the best ways to do this is by removing yourself from the auction room altogether. Have a buyers agent, friend or family member you can trust do the bidding on your behalf. If you have developed a game plan prior then you should be able to give them a maximum spend and let them go to work.
Have an alternative
One of the best negotiating positions you can be in is to have a viable alternative that you can turn to should the first option not work out. This helps you avoid pinning all your hopes on one deal and sacrificing everything else in the meantime.
Understanding your alternatives allows you to weigh up all your options and keep the deal in perspective, even when things are running hot in the auction room.
Be prepared to walk away
Too many people bid at auction from a position of fear that they will never find another property again. What they fail to consider is that they probably have a lot more experience and have built more relationships with agents than they care to give themselves credit for. If they had to get back out there and do it all again they would have a big head start on others who are just starting out.
Understand that great deals are out there all the time. While walking away may be an inconvenience, paying over the odds can cost you years of hard earned income that may be very difficult to recoup.
Keep your spending in perspective
Many people balk at the idea of spending money on solicitors, building reports and Valuations unnecessarily. Ironically, it’s not uncommon to see people quickly bid another $10K above what they’re prepared to pay (and possibly more in the auction room) without a second thought.
Keep your spending in perspective. If you carry out reports and have the contract reviewed on more than one property at the same time you have the advantage of being able to play two deals off against each other. It may cost you $1K or $2K more but it may also help you curb your spending in the heat of the moment and save you tens of thousands on auction day.
So remember, auctions are designed to take advantage of the impulsive nature of people’s emotions. Don’t get caught up in the hype. Create a game plan and have the discipline to stick to it. With a clear head, some patience and a little perspective, you’ll find that the deal of a lifetime appears a lot more often than you think.