In Focus

Understand your bidding strategy

28 Hume Street Armadale
David Sciola

David Sciola - Partner & Auctioneer

March 2024

Melbourne is the auction capital of Australia, if not the world.

No other city has such a strong bias towards auction as the preferred method for selling real estate.

If you are a homeowner in Melbourne, the chances are that you have participated in auctions before, either as a buyer, seller, or observer.

Auction is the only fully transparent sales method, especially since dummy bidding was outlawed in 2004.

It’s the only way to have all the buyers’ cards laid out on the table for all to see… or not.

As an auctioneer who routinely calls several auctions on a Saturday, nothing is more irksome yet predictable than the deafening silence nearly every time I call for an opening bid.

Nine times out of ten, it’s crickets… No one wants to go first.

But why does everyone have the same strategy of not wanting to go first?

Even when we know that there is strong interest on a property and we are going to have competitive bidding, it’s still often like pulling teeth to get the first few bids.

I guess bidding is a bit like putting your hand up in class, or public speaking. It can be nerve-racking or anxiety inducing. Especially going first. Once other hands go up it makes it easier. Social proof.

There can be some merit in the ‘jumping in late’ auction strategy – waiting until the very end of the auction when all but the last remaining bidder has stopped, and the auctioneer is just about to knock the property down, and then jumping in with a single knock-out bid – this can be demoralizing to the other bidders and sometimes works.

Unfortunately, if everyone has the ‘jumping in late’ strategy, or waiting until the property is ‘on the market’ before bidding, then the auction will be a stalemate and never reach the reserve.

If you look at the professionals – the buyers’ advocates and other real estate agents – they usually get in early and are happy to start the bidding and assert some authority.

If they are attending an auction with instructions to purchase the property, they rarely hold back or wait. They just get on with it.

This is because they realise that there is more risk to not bidding than bidding. And if they are going to miss out, they might as well find out sooner rather than later.

If they are the only bidder, the property will pass in to them and they will get the exclusive right to negotiate first.

If no one bids and it passes in on a vendor bid, it can be a free-for-all and inevitably gets messy if there are multiple parties coming forward after the auction.

If there are multiple bidders, they can try to take control of the auction and potentially ‘scare off’, intimidate or dissuade others from bidding or continuing to bid, even when they would potentially pay more.

The best way to do this is to seem like you have an unlimited budget and won’t stop.

You don’t have to be aggressive or bid in large increments (although that can be a strategy), it’s more about not hesitating and being confident or even nonchalant.

In reality, everyone has a limit, and whoever has the highest limit usually buys the property. But there are some instances where buyers do pull up short because they believe “the other buyer would have kept going”. We hear this all the time.

So, if you’re planning on bidding at an auction, take a leaf out of the professional’s book and bid early and/or bid assertively up to your limit, and then stop.

Don’t be afraid to put a few early bids in before the property is ‘on the market’.

You haven’t committed to purchasing the home until the reserve has been reached, so there’s nothing to lose.

By the law of averages, the first bidder is the most likely to purchase the property. And you might feel less nervous once you’ve actually bid. So don’t be afraid to go first.

Like public speaking, the worst past is often the anticipation, rather than the doing.

Lastly, there’s no better way to flag to agents that you are a genuine, motivated buyer than by bidding and missing out at auctions.

Agents only have a limited amount of time to do buyer work and tend to prioritise buyers whom they know are actively bidding.

We have a list of underbidders, updated weekly, whom we preferentially send off markets opportunities and upcoming listings to.

As the saying goes, fortune favours the brave. Better to have tried and failed than never tried at all.

Posted in Melbourne Real Estate Boom.

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