Michael Yardney from Metropole Property Strategists draws on his years of experience at buying property at auction. He has 9 pearls of wisdom for you.
Kevin: Here we are in February already, and the auctions are cranking up for 2015. Joining me once again to talk about auction strategy, if you find yourself at auction, is Michael Yardney from Metropole Properties, who does this quite often, not only for himself but for clients, as well.
Good day, Michael.
Michael: Hello, Kevin.
Kevin: Let’s have a look at your tips for buying at auction.
Michael: First of all, we have to assume that all the other homework has been done about choosing the right location, choosing the right property in the location, so I’ll just concentrate on what happens just before and when you get to the auction. Is that okay?
Kevin: Yes, please. Thank you.
Michael: I guess the first thing you have to realize, of course, is that an auction is an unconditional sale. You’re stuck with it, so you have to do your homework first. First of all, I guess that means you have to have your finance pre-approved. Make sure that you have the ability to buy unconditionally, not subject to evaluation. You know where you stand.
The second thing is you have to do all your homework, your due diligence prior to the auction. This may include a strata report, maybe building and pest inspections, checking zonings, council ratings, etc.
Then understand what the value of the property is again by doing your homework, by looking at comparable sales, and giving yourself a fair limit to give yourself a good chance. But never do your limits on a round figure. Do you know how many people finish on $500,000 or $550,000? Always give yourself one or two bids above that. That may just get you that property.
Kevin: Just on that point, Michael, when you are doing a strategy before you go to an auction, would you have a couple of figures in your mind, like the figure I’d really like to buy it at and the figure I’m prepared to go to?
Michael: Yes, and they’re very different, aren’t they? I’d like to buy cheaply, too, but I’m also realistic, knowing that if it’s a good property, there’s likely to be other good competition. If I was the only one bidding on them, I’d be a bit concerned have I actually chosen a dud somehow or another, not seeing something everyone else has?
Kevin: That’s a good point.
Michael: I’d also get my solicitor to check my contract beforehand, make sure I understand my legal obligations if I’m a successful bidder. You’re allowed to ask for changes, you’re allowed to ask for commitments. That doesn’t mean that they’re going to accept them, but if I do ask for changes and they do accept them, you often have an indication of how many other potential bidders there are. In other words, if they’re very standoffish and not prepared to countenance any options or changes, maybe there’s other strong competition. On the other hand, if they’re prepared to look at it, maybe there won’t be as many people.
Michael: Also, understand the rules of an auction. Go and see as many auctions as you can, but with the particular auctioneer, not the company, because each auctioneer has their own set of words, they have their own way of doing things. So when the property comes on the market, you’ll know the words they say when they’re going to sell. You research auctions, the agency selling it, and this auctioneer, as well.
On the day, I’d turn up early. If it’s at the property, not in rooms, I’d actually be looking at the surroundings. I’d be seeing who the attendees are. Of course, don’t forget to bring your checkbook.
When I go there, I actually hang around where the contract is, which is often on the kitchen table or somewhere, just to see who else is looking. Interested parties will look at the contract, while neighbors who are just sticky-beaking probably won’t look at the paperwork.
Kevin: When it comes to the time of the auction, where do you position yourself with the auctioneer?
Michael: I actually do something that’s a bit cheeky. I actually stand as close to the auctioneer, facing the crowd, as I can. I’m usually there in a suit, and they wonder, “Who’s this guy?” He’s another estate agent? He’s part of the team? All of a sudden, he’s bidding.
Kevin, what I actually do is I speak to the auctioneer by name. I will usually start the bidding in this market, which is a hot market compared to previous years when it was flat. I’ll say, “John, I’m going to start by bidding $450,000.”
What do you think? Hey, he knows him by name. He’s standing there as part of it. I’m confusing them. It’s all legal. It’s all correct. I’m confusing them a little bit. I call him by name, that’s where he’s starting.
I often start close to where I think the reserve is going to be, and it stops the momentum. Then I bid strongly, and my last bid is as strong as my first. Without hesitation, I go right up to the limit I’m given by my clients, and if I do it that way, people have no idea where my limits are. It’s basically psyching them out a bit.
Kevin: Yes. There is a skill in bidding at auction. There is no doubt of that whatsoever. That’s why anyone who’s inexperienced with that should consider getting a buyer’s agent to do it for them, which is what you do, I guess?
Michael: I guess, that’s exactly what we do. There’s also a skill that happens if the property gets passed in. When the property gets passed in, a lot of people think you have to go inside and you’ve actually got to talk with them and you have to negotiate on their turf. I actually don’t do that. I say, “That’s okay. I do want to speak with you, but if you don’t mind, I’m going to stay out here.”
There’s a reason why. It’s again partly playing the game, but I’ve found that when you go inside, they say “Oh look, the under-bidder is hanging around outside, and he’s moseying around.” I want to make sure that he is there or he isn’t there. I play it on my turf and I play it my way again. It’s a little bit like chess. It’s a little bit like knowing where you want to end up and having a plan and then implementing that plan.
Kevin: There you go. That’s the plan for auction from Michael Yardney at Metropole Properties. Thanks for your time, mate.
Michael: My pleasure, Kevin.