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The Art Of The Bidding War At Property Auctions
There are thousands of legitimate reasons why properties end up at the auction house. You can either view these listings as so undesirable that investors are unwilling to touch them even with a fishing pole, or that these are assets so desirable that the seller feels the most money can be generated from a public auction.
Whatever the case, these closely held events can be a gold mine if you know what you are doing. At least that’s what people in general think about auctions. This is because there is a general perception that all real estate being liquidated in these events are due to bad management instead of bad assets.
The 2 golden rules of making it out of auctions alive and financially intact is
- Do your homework
- Do not bid above your limit
Although these 2 rules are not exactly revolutionary, you will be surprised at how many people let their emotions get the better of them during the bidding process. This is even when they see themselves as highly disciplined. Maybe this is why organizers love the game so much.
Other than the 2 rules, here are some tactics that could very well give you an edge in a sea of competition when the buying temperature gets high. Being prepared can make all the difference between winning and losing.
Is there an opportunity to close before the auction?
It hard to say whether it will be a wise or dumb decision in attempting to close before an auction. You could out-manoeuvre everyone else by avoiding a frenzy sea of bidders. You could also be used as a starting point for the vendor as he takes it to the market to attract higher bids.
Only make a move like this if you feel that there is strong reason for the vendor to close early before everything else. Provide a reason why you are doing this. This is so that the seller does not feel that you are trying to get one over him. For example, you are unable to attend the auction. Also add that you will walk away if a deal cannot be made.
Take note of the reserve price
The reserve price is a price that the vendor has set which makes it obligatory to sell the property. This also means that if there are no bidders who bid at or above the reserve price, the vendor has the right to pull back the listing and decline to sell. Usually there will be a declaration of whether a house has a reserve or not. It would most probably be listed in the itinerary at least.
Get a strategic bird’s eye view
You might think that your role is to place your bids and see what happens. People will do what they have to and the lucky one will win. That is the wrong way to go about it. There are strategies you can apply as well when the ball is played.
One of them is to get an elevated view of all participants. You will then be able to observe their actions and body language and gauge their positions. You might be able to pick out a dummy bidder, a bidder who is at war inside himself to raise his bids, a bidder who is bidding with total conviction, a bidder who is acting on orders from the phone, etc. If you are sitting in the front row, you won’t be able to see the flurry of activities happening even when everyone is on their seats.
You observations might lead you to making the best response required to achieve your goals.
Intimidate other bidders
Unless there are billionaire players in the room who are hell-bent on getting what they want, you can assume that every other player has a perimeter which they are working within. They would buy based on numbers. But that does not mean that they cannot be intimidated to avoid locking horns with you.
You can easily send a message to others that you mean business by starting the bid quickly at a high figure. It’s like poker. By showing a strong intent, some people might just prefer not to engage in a battle with you.
Double the incremental bid
Remember that this is a game. The only difference is that this game has real money involved. Another way to up the ante is to double or even triple your incremental bid.
For example, if bidders are upping their bids by blocks of $10,000, the whole room could be taken aback by a sudden $30,000 increment. Again, this shows a strong intent.
The social play could also come into the picture. Because now others might feel that they are expected to meet your increments to slug it out with you. A small incremental bid can make them feel embarrassed. The social game is very real in real estate. Work it in your favour. Keep your ceiling in mind when using tactics like these.
The revival counter
Another mind game that can really screw with your rival’s head is to let him think he has won by letting the bidding slow down to almost a halt. And just when the countdown is going to close, get back in strongly like there is no tomorrow. This works best when the bidding has gone on for an extended amount of time.
Start only when the reserve has been met
For listings with a reserve price, you should only start bidding once the auctioneer declare that it is “on the market”. This means that the reserve has been met. When you do bidding before the reserve have even been met, you are just doing extra work.
The worst part is that the more you do, the more people get to observe what you are doing. This gives them the chance to size you up. And as you would probably agree, the more you know your enemy, the more likely you will be able to beat him.
Avoid lowering your incremental bids
As soon as you start making smaller incremental bids compared to what you were submitting before, others start to think that you are nearing your limit. Or they could even think that you feel the property in question is not as valuable as the price.
Even if you are still strongly in the game, it is this perception of weakness that can encourage a new wave of competitors to enter the fray against you. And that will drive up the closing price when the hammer drops.
Play the must-get card
In auctions, nothing is a more intimidating rival than one who is emotionally connected to it. If people think that you are bidding on emotional value, they probably won’t want to get into a tug-of-war with you.
So it can work in your favour if people think you must get the house at all costs. The problem is that you cannot make an announcement that your great ancestor used to live in that house and you will pay whatever it takes to acquire it.
One way to communicate that is to continually bid on a property from the start and never show any signs of weakness. Counter every competing bid quickly as if there is no question any bid will be upped by you. You can scare off the bulk of bidders with this tactic even if they have a higher ceiling than you.
The show is not always over
One of the best opportunities that might present itself to you is when an auction closes without a sale. This could be due to no bids or reserves not being met.
After spending money and resources to conduct the listing, a vendor will be pretty disappointed to fail. This is the time to get in touch with the agent to learn more about the circumstances concerning the sale. You never know. Such a failure might convince the owner to accept a lower offer.
Your credibility will be even better if you happen to be one of the bidders who did not meet reserve. You have already displayed that you are a genuine buyer. Agents will be happy to attend to you as their priority is to move the stock.
Remember that auction rules, practices, and norms vary from place to place. Be sure to get accustomed to them before getting more serious in the auctioning game. And it might serve you well to attend some auctioning events as a passive participant beforehand so as to get some experience under your belt. Because you can be sure that when you are personally involved, managing your emotions become your biggest challenge.