Four auction nightmares and how to avoid them

Heading to an auction to purchase a property can be an exciting time for any home buyer or investor, however, if you want to avoid a number of “nightmare” scenarios then you need to research carefully.

EPS Property Search’s Patrick Bright, who wrote the Insider’s Guide to Saving Thousands at Auction, said with the practice of underquoting widespread  in Sydney and Melbourne, it’s more important than ever to do your research.

“As soon as searching for a property becomes a major chore, people tend to start cutting corners on the research that’s needed just to get the process over and done with,” said Bright. You don’t want to be that person.

“Remember a property is likely to be one of the biggest purchases you will make in your life,” he said.

“From my experience in reading hundreds of building and pest reports, around one in three properties have what I would regard as significant structural damage, and or, pest issues that you need to take into consideration when making an offer.”

He recommends researching 100 properties ahead of time.

 “Researching 100 properties may sound like a lot of work but it’s really only 10-12 properties a week over a 10-week period,” said  Bright.

“Given that this work will save you tens if not hundreds of thousands of dollars I would think it’s a very worthwhile investment of your time.”

So what are the major traps you can get caught in? Here are his four nightmares and how to avoid them:

• Getting carried away

Everyone wants to be a winner and unfortunately auctions can turn into an expensive game or an ego play for inexperienced and highly emotional bidders. The problem is that one extra bid can easily turn into a handful of extra bids which could result in you paying a price above fair value and beyond your financial means.

If you’re the type of person who could get carried away in the moment then engage a trusted friend or family member or a professional buyers’ agent to bid at the auction on your behalf.

• Forgetting the selling agents’ role

You need to always keep in mind that the selling agent is acting in the best interest of the seller not the buyer. On auction day, don’t let the selling agent pressure you into increasing your bid if the auction stalls.

If you’re the highest bidder and the property isn’t on the market, then allow the property to be passed in and start your negotiations in the post auction environment. Stay focused on the job at hand in order to avoid bidding against yourself at auction.

I witness this happening quite often and in speaking recently with two auctioneers with over 40 years’ experience between them they estimate it happens at roughly one in three auctions.

Typically the highest bidder gets caught up in the moment of the first call, second call and ends up bidding against themselves through fear of missing out as they are not sure if they are the highest bidder at that time.

• Over-extending yourself

Follow my 20-25-20 rule which is a 20% deposit and no more than 25% of your income in repayments over a 20 year loan.

When purchasing a home or investment property you should always aim to put down at least a 20% deposit so that you avoid paying mortgage insurance and have some equity in your property.

I call this “the ability to sleep peacefully at night buffer”. That way you know that you and your family can cope if unexpected financial challenges arise.

• Ignoring property inspections

You’ve already paid for pest and building inspections on two previous properties that you’ve missed out on buying. You’ve found another property and you’ve convinced yourself that you don’t need the checks on this one.

You start thinking these inspections aren’t really necessary. Wrong! You absolutely need to know what you’re buying into.

The property may be termite infested, the construction may be shoddy or the wiring and plumbing may be faulty. Any of these major faults will costs significant dollars to fix and this expense should be factored into the equation when working out your maximum bid figure prior to auction.

Source: Patrick Bright