Strategy or Science

Auctions – love them or loathe them, they are almost unavoidable, especially in a competitive market.

Early this year, just under 3,000 capital city homes went under the hammer, compared to just 612 a year ago (although fewer auctions were expected during the onset of the global pandemic)1. The trick to buying at auction in this market is understanding the strategy, the science AND being well

Auction strategies

If you have ever been involved in an auction you would no doubt have had a planned strategy. Whether you stuck to it in the (sometimes) frenzy of the auction is another thing.

When attending an auction would you:

  • be the first bidder and open with a strong first bid?
  • stay silent then come in with a killer bid right at the end?
  • make a quick counter bid as soon as someone bids against you?
  • recruit a professional to bid for you?

While economic and property fundamentals, as well as local market conditions, have a significant impact on price, controlling the bidding can also affect the result.

Know your knockout bid

Auctioneers suggest that avoiding round numbers can work well for buyers and changes the pace of the bidding. For example, if you open the bidding at say $595,000 instead of $600,000, the bidding will likely continue in smaller increments of $5,000 instead of $10,000.

According to auction streaming service Gavl, the most common knockout bid is a $10,000 increase2. While bidding in smaller increments at the start of the auction can slow the auction down, conversely some suggest that bidding big at the business end of the auction is just as important. If your limit is say $1,100,000, the auction is going up in increments and there is a bid for $950,000, going straight to $1,050,000 shows confidence.

Smash the barrier to auction success

Perhaps the biggest (and subconscious) psychological barrier to success during auctions is our body language.

Real estate site Domain suggests that projecting assertive body language and knowing your limits are critical. Bidding confidently, loud and proud, can impact the final result. Studying other auctions and understanding how bidders behave at an auction can help reveal when a buyer is reaching their limit. But enough about strategies, back to the science.

There is a science to auctions!

Research from the University of Sydney and the University of Technology Sydney shows that people bid LESS at auctions that have MORE bidders3.

Findings from this research are consistent with the ‘loss aversion’ theory – people tend to prefer avoiding losses as opposed to acquiring equivalent gains. We are more upset about losing $10 than we are happy in finding $10.

The theory suggests when there is more supply (bidders), we tend to bid less. Bigger crowds and more bidders at auction don’t always equal more money for the vendor. Regardless of the strategy or science you adopt, it is important to be well prepared BEFORE you attend an auction. Read our six steps to take before an auction.

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