Hammering home your offer

Photo / Herald on Sunday

House hunters are now competing in a shallow listings pool, forcing more of them to attend auctions - fraught with traps for the inexperienced.

QV statistics show there is a shortage of properties on the market, while at the same time, almost 45 per cent of Barfoot & Thompson's sales in the past three months were auctions, according to director Peter Thompson.

Bryan Thomson, chief executive of Harcourts, says 21 per cent of the company's new listings in October were for auction - up from a rolling 12 months' average of 16 per cent. Thomson expects this trend to keep growing.

But buyers who don't know what they are doing are like lambs to the slaughter, says Stephen Hart, principal of www.aucklandhomefinders.co.nz.

"Egos are involved, people feel ill at ease and are likely to be influenced by the auctioneer - it's high drama."

Stewart McLoughlin, an auctioneer and buyers' advocate at Mortgages by Design, agrees would-be buyers become fazed and miss things: "It's natural, they are under a lot of pressure - how often do they go to an auction?"

Don't try to buy at the first auction you attend, Hart advises - make sure you familiarise yourself by going along to watch a few first.

Many buyers don't know that the seller or their agent is allowed to bid, to push the price towards the reserve, although this is not allowed once bidding has reached the reserve level.

A vendor bid is usually signalled by the auctioneer saying, "The bid is with me".

It is best to let other bidders battle it out at the beginning of the auction, says Paul Mead, a buyer's advocate at Estate Agents. Good auctioneers inject the ambience into the audience and draw out the bids early in the piece, but Mead advises buyers not to show their hand until the reserve has been reached and the property is on the market.

"If there are two others bidding on the property you want, the wise person would stand back and wait before they showed their hand."

Before bidding at auction, prospective buyers have to satisfy any concerns they may have about the property, says Murray Piesse of First National Rotorua, including speaking to a bank or mortgage broker to confirm finance, getting a building inspection or having a lawyer check the conditions of the sale.

"Remember, come auction day you are bidding unconditionally, so you must be completely satisfied with the property in all respects, as when the hammer falls you will be the buyer."

Prospective buyers are often cautious at auctions because no bid can be retracted, says McLoughlin, but on the other hand, if you really want to buy the property, you can't do so without bidding.

This doesn't mean you have to bust your budget. If you pull out of the bidding and the property is passed in, the highest bidder may have the first right of refusal to buy at the seller's reserve price, or negotiate another deal.

McLoughlin says at this point, the auctioneer or seller's agent will approach the highest bidder and encourage them to raise their bid - effectively inducing them to bid against themselves when they don't have to.

A smarter tactic is for the buyer to offer to sign a contract to buy for their last bid amount. "That's the market best."

While the auctioneer may take the highest bidder into a back room and give them the first negotiation opportunity, Mead says any bidder can also ask the auctioneer or real estate agent immediately after the auction to present an offer.

In the current market, about half of properties that go to auction sell afterwards, usually within two days, Piesse says.

From the seller's perspective, auction campaigns are expensive, says Mead.

As well as the agent's commission, sellers are charged for extensive marketing and, in most cases, an auctioneer's fee. So if a buyer wants to make an offer before the auction, it will be most effective at the beginning of marketing, so the seller can suspend the campaign and save some money.

Pre-auction offers are more likely to be accepted if they are unconditional, Hart says. "Do it before anyone else has had a chance to register interest. If you do it later, you just give the vendor an idea of where to set the reserve."

And buyers should remember if they miss out on a property, Hart says, there's always another opportunity around the corner.

Be firm before you place a bid

Trevor Lovegrove bought a new two-bedroom home at Arkles Bay on the Whangaparaoa Peninsula at an auction with a difference - he was the only one bidding.

"I think we got a pretty good price."

He says it was a nerve-racking experience, and he's glad no one else was bidding.

Lovegrove prepared to bid on another home recently, but the lender declined finance as the valuer's report was unfavourable. He attended the auction anyway to observe and get a better feel for this sale method.

"Go along with a firm idea of what you want to spend and don't exceed it," Lovegrove recommends.

"You see people get carried away at auction and spend more than they should have. Don't be emotional about it - know when you are going to stop."

At auction
To bid at an auction, you must:
* Have completed all due diligence, such as obtaining a registered valuation, LIM and building report.
* Have finance approved unconditionally.
* Have discussed the purchase with your solicitor - get a copy of the agreement to be used to check for any unusual clauses or amendments to the standard document.