Buying property at auction – a personal experience
Call me old…. But I haven’t been involved with the purchase of a property for nearly 20 years. Peter and I built our dream home in Cambridge, and loved the process, and sold our properties in Turangi (one by negotiation and the other by deadline treaty), but buying a house – nope, no modern day experience.
Until a few months ago. A family member decided to purchase a house in Cambridge – at the peak of the property market euphoria (well time will tell whether it was the peak, but it felt like it at the time), and asked for our assistance in the process.
Of course, the property that they found was going for auction (not negotiated, not deadline treaty, not tender). A new experience for us.
The property was in a perfect location, perfect condition, perfect size – the goal was to get this ‘perfect’ home at auction – and not spent a gazillion dollars. But oh – that is not easy!
Firstly – being old fashioned – we thought we could make a pre-auction offer – as the advertisement said ‘if not sold sooner’. However, we then discovered that around 18 months ago, the rules around ‘pre-auction offers’ had changed.
If we had made an offer two things happened:
1. The vendor had to accept the offer (so it had to be a good offer, within their vision of what the property was worth) and then..
2. The property still went to auction. The difference was that the auction was brought forward so that it was held within four working days of the offer being accepted.
The Real Estate Agent made it pretty clear that she felt that the vendor shouldn’t accept any pre-auction offers, and just see how much they could get in this heated market. So, we didn’t bother with the pre-auction offer.
We did however, get a building inspectors report completed. At $595 (we asked various real estate agents who they recommended and they all said the same person), it was well worth the money. Very comprehensive, it looked at the insulation, for any leaks, the quality of the paint, whether the lights, oven, dishwasher worked. Highly recommend it if you are buying a property.
Then came auction day. The media was full of stories of how properties in Auckland and Wellington were selling for ridiculous prices, but our family member was well prepared with a good budget of pre-approved financing.
The Auction Day and Experience
Prior to the auction we did a lot of research as follows:
1. Talked to people who had purchased properties at auctions and got good tips
2. Talked to a friend who had been an auctioneer and got good tips
3. Our mortgage broker provided us with an excellent report of all the properties in the area that had sold, and we did an analysis that indicated that ‘good’ properties were selling for 15% over their RV and ‘great’ properties were selling for 20% over their RV (admittedly the most recent prices were at least 30 days prior to this auction).
4. We found out that our property was being auctioned with two others. We researched those properties and made notes. We looked on homes.co.nz and found the properties land area, building area, RV, date of build, how many rooms and location. This information was quite useful on the day.
On the day, we were nervous – Peter got allocated the job of bidding for us. Another friend who is a real estate agent offered to come in and help us, which was really useful.
This is what we learned that could be of interest to you:
1. Not many of the people who are in the auction room on the day are there to bid. When we walked in the room was packed. Our real estate agent friend responded to our horror by letting us know that there would be neighbours, future vendors, nosy parkers, other real estate agents and existing vendors in the room, that not everyone was there to bid.
2. We positioned ourselves at the back of the room so that we could see what was happening. Peter stood so that he could see where the bids were coming from.
3. Don’t be the first bidder, don’t show how keen you are. It had been recommended to us that we wait until the property ‘is on the market’, but as you will see below – with the inflated expectations of vendors, none of these three properties came ‘on the market’.
4. Fortunately, our property was the last one to go up for auction, so we could see (and be mortified) by what happened with the first two auctions. The first property was more or less the same as our property (RV, estimated market value, smaller section, one less bedroom, but also 12 years newer).
The bidding stopped at 26% above RV – and the property still wasn’t ‘on the market’, so went to negotiation. When the parties returned from negotiation, the parties had agreed that the property was on the market at a price that was 41% above RV.
From there the property went back on the market, but there were no other bidders.
The next property followed the same trajectory, RV was $1.543, estimated market sale on homes.co.nz was $1.8 – 1.85. The bidding went up in $100,000 lots – very quickly until it got to $2.6m. Wow. Still not on the market! It eventually came back into the room with a price of $2.65m and was on the market and no other bidders. Sold at 72% above RV.
By now of course we were getting pretty nervous!
5. The bidding started, and Peter stayed out of the bidding until the price got the price that we had intended to put our pre-auction offer in at. The auctioneer was moving in $10,000 lots. There were multiple bidders to start with, and then it got down to two bidders, Peter and another person.
Another hint that we had was that if you really want the property and have the finance, if someone else hesitates, jump in quickly with your next counterbid and keep the pressure on them.
Also – the auctioneer will see you – you don’t have to be flamboyant.
We managed to get the final bid – so although the property still wasn’t ‘on the market’ we were in the position of being able to negotiate. Fortunately we had a bit of bargaining power, as the settlement date had been changed as was now just before Christmas, so we used that as a bargaining chip, which we feel enabled us to pay a little less than if the vendor had been more flexible (they were moving overseas and had already booked their flights and shipping container).
Having negotiated through the agents in the back room, the property was ‘on the market’ – at 29.5% above RV. Maybe it was because it was an older property, it didn’t go for as much as the other two properties.
We then went back into the auction room and there were no bidders! Yay – our family member had secured the ‘perfect home’.
Hopefully our experience gives you some helpful tips if you or friends or family are in the situation of buying a property at auction!