Buyers hold several misconceptions about property auctions. Many stay away because they think properties will always sell for a high price because of other bidders. Others go equipped with a plan of attack, hold off from making a bid at the last minute or when the property is opened to bidding.
1. The reserve price is not the amount vendors are happy to sell their property for.
Sellers and buyers alike mistake the role of reserve price. Sellers believe that it should be the amount that should warrant a celebration, and buyers think it is what vendors want. Actually, the reserve price is often the least possible amount the vendors are willing to accept for their property.
2. The full 10% deposit must be paid on auction day.
Buyers should ask the agent or seller prior to the auction if they’re unable to pay the whole deposit amount on auction day. You may be allowed to pay a smaller portion on auction day and pay the balance over the weekend or Monday to complete the 10%.
Alternatively, you may call the seller’s bank and arrange for large transfer online if you win the bidding on auction but don’t assume this can happen automatically. You need to ask first!
3. Don’t expect to buy on the scheduled auction date.
Sellers can accept an offer prior to auction day, and a number of satisfactory offers could initiate a boardroom auction a week or two prior to the day of the auction. Things may change depending on the purpose of the vendor to sell and the purpose of the buyer in wanting to acquire the property.
4. Resisting from bidding doesn’t ensure you will purchase for a lower price.
Some buyers hold off from bidding at the last moment thinking the price will move higher if there are many people bidding early on. But this is not the case because many people wait until it is declared on the market, while others don’t. I believe you can win against competitors with a good, strong bid.
5. Buyers will always pay a premium price at auction.
Purchasing property through a private sale doesn’t mean you have no competition. You may make an offer through your agent and there may still be several offers in a private sale situation. But you will not be able to know who the other buyers are, and therefore may not get a feel of the situation yourself.
Some buyers may pay more than they planned in the end, but being the highest bidder also allows you to negotiate at the seller’s reserve. Some people mistakenly believe that there are dummy bidders during auction. This is simply not true.