3 Auction Bidding Strategies
How to use Auction Bidding Strategies?
I’m often asked about auction bidding strategies so want in this article to lay out some basic steps that I see most home buyers who are searching for a home go through.
Here are auction bidding strategies:
- Bid aggressively
- Use knockout bids
- Bid in round numbers
When the auctioneer and agent come out after conferring with the vendor and say that the bidding is not quite at the reserve, but is close to it, you should ask: ‘Well, what can I buy it for?’ But if they come out and say the property is ‘on the market’ – that is, the bidding has reached a level that the vendor is willing to sell at- you are playing for keeps. You don’t get a second go. Now your bidding strategy should be based upon what you have learned from your research.
1. Bid aggressively.
If you break the bidding down to $1000 bids here- I have sometimes seen people pay $200,000 over the reserve on $1000 bids — the other bidder thinks you only have $1000 left. No one can value a property down to $5000 or $10,000. So increase the amount of your bid. Turn up the heat on the opposition. If you are standing next to them, offer to toss them for the property.
I attended an auction for a block of land in Sydney with a harbour frontage. There was huge interest in the property. The auctioneer announced that he would not disclose whether the property was on the market or to be passed in, but at the fall of the hammer he would let everyone know. This is unconscionable conduct. The auction was very heated, with the auctioneer being bombarded with questions every time a bid was made. By the time the property was put on the market, after a lot of remonstrations from me to the auctioneer, I was still competing against one other genuine bidder. Clearly for buyers who can afford to offer $4 million for a block of land money is not a problem. So this auction needed a different strategy – one to slow it down and take the heat out of the bidding. I walked up to the other bidder, stood directly in front of him, and asked whether he would like to toss do it. I could see that he was probably near his limit and said so to him. He made no more further bids and I bought the property under the hammer.
The next morning the newspaper headline read: ‘This man earns $40,000 in 20 minutes for being a pain’. What the story didn’t say was that the bid I had bought the property on was my client’s limit! If I hadn’t approached the other bidder, my client would not have secured the block of land.
2. Use knockout bids
Sometimes before an auction, if you have worked out that there are a lot of interested parties and you feel it would work, you can use a ‘knock-out’ bid to secure a property. If the agent has been quoting $700,000 plus and you know the property is worth $850,000 – $900,000, open the bidding at $850,000 or let somebody start off at $700,000 and when the auctioneer calls for a rise of $10,000, offer $850,000. Not everyone will be ready for this and often knockout bids can have the desired effect of eliminating the competition.
After walking around, looking at the faces in the crowd which had gathered for the auction of the modern Tuscan-style house, I worked out that there were three interested parties. You could see it on their faces! The auction started at $850,000 with rises of $10,000 until the bids reached $920,000, when the property was put on the market. My next bid was $1 million. I raised the bidding by $80,000, which sent a clear message to the other parties that I had plenty of money to bid with and therefore was not fussed by $10,000 amounts. More importantly, the subliminal message was, ‘I’ve got plenty more money where that came from.’ The main bidder simply shook his head and walked away. This use of the knockout bid was very effective, as people tend to think in round numbers and other parties would probably have seen a round figure as their limit and stopped bidding. The next day my client was offered $100,000 for the contract.
3. Bid in round numbers
Often, at an auction, the first bidder to reach a round number ends up buying the property. When buying property, most people think round numbers in big increments, i.e. $100,000, $50,000, $25,000, $10,000 and $5,000 lots when setting their limit. No one thinks in terms of a specific number, such as $428,200. Because they don’t bid and value the property each weekend, they tend to round off numbers. When instructing someone else such as an uncle, aunt or brother, to bid on their behalf they usually set a round number as the limit and it’s usually a big one, eg. $500,000 or $600,000. Often potential buyers will have two round numbers, eg. ‘We would like to buy it for $450,000, but we will go to $475,000 if it looks like we might be able to buy it.’ If they are bidding for themselves, it’s often a spur of the moment decision: Let’s try another $20,000 and see if that will secure it.’ I always suggest that purchasers have two extra bids, other than a round number. The opposition may get to the round number first or add an extra thousand and then you lose the property by $1000.
At a Sydney auction I was clearly bidding against some heavy hitters. The property was worth $3.5 million and my client had instructed me to bid up to $3,999,000. He had a real issue with round number and wanted to draw the line in the sand. The auction was hotly contested and at $3.8 million it was just down to two bidders. I tried everything, including raising the bidding in $50,000 lots, but nothing was going to stop this bidder. It was going to be a round number, or at least I thought it was. So I jumped the bidding to $4 million, $1000 dollars more than my client’s instructions, and managed to secure the property. The other bidder had had instructions to bid to $4 million. After that, it was to be on a nod. However, because I had bid so aggressively, the other bidder presumed that I had more left.
– David Morrell
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