Case Studies

I bought a property for a client the other weekend with a simple but effective auction strategy: Quietly study the competition until bidding hits the reserve, wait for things to slow down a bit, and then bid hard.

Every property, campaign, and auction is different, so this isn’t a one-size fits all approach (i.e., I use different strategies depending on the circumstances). But I reckon the following advice is useful for professionals and non-professionals alike.

In the points below, I’ll delve further into this approach as well as a few alternatives, so you have access to 10 simple bidding strategies that you can use at your next auction.

I’ll also provide a real-life case study to demonstrate how many of these strategies can work together to help me (and you) confidently and effectively buy a house at auction.

Understand This: Auctions in Melbourne Are Designed To Benefit Sellers!

I’ve been working as a property investment advisor and buyers advocate in Melbourne for years, and if there’s one thing I know for sure, it’s that all auctions are designed to benefit sellers.

Firstly, it’s the vendor who is calling the shots. Going into an auction, nobody knows what price the vendor wants – even the selling agent sometimes! The unknown keeps everyone interested and on edge.

Secondly, most auctions are conducted in public, in front of a large crowd. The vast majority of people attending aren’t there to bid; they’re simply looking to enjoy a show. But serious buyers see everyone as potential opposition, and their competitive instincts go up.

I could go into 5 more reasons why property auctions favour sellers, but really, it comes down to two simple facts. Auctions are all about emotion, and buyers don’t want to miss out!

So, here’s what happens. Emotional and inexperienced buyers compete with each other, and many bid much higher than they originally intended. What is another thousand dollars? Five thousand? Ten thousand?! The motive can often evolve into beating the other guy instead of securing the property.

So, how do you break this cycle and secure your investment property for a good price?

Try These 10 Real Estate Auction Bidding Strategies

1. Tell the Agent You’re Seriously Interested Immediately Prior to the Auction

One key thing to understand as a buyer is what happens if the bidding doesn’t reach the reserve price. Generally, the vendor will be forced to negotiate in a more rational environment. This involves the seller and agent putting their cards on the table and ultimately saying “We want $X for the property”. Their proverbial pants get pulled down, ideally without a single bid being placed.

Auctioneers make a big deal of affording the highest bidder the first opportunity to negotiate with the vendor if the property passes in, and this can be a risk for those who don’t have that last bid. 

A good way to alleviate this risk is to tell the real estate agent prior to the auction that you are seriously interested in purchasing the property. If it passes in, and negotiations with the highest under-bidder commence, the agent will advise the vendor that they know of another interested party who may be willing to pay more.

By making your intentions clear, you do two things. You increase the likelihood that the vendor will not settle because they know there’s another party who may be willing to pay more. And you keep yourself in the race when the property is passed in, even if you’re not the highest bidder.

2. Don’t Bid Until the Property Goes on the Market

There are a few schools of thought on exactly when you should bid, and we’ll explore some of them in the points below. But this strategy pairs perfectly with our first point, so this is where we’ll start.

When a property is “on the market”, it has reached the vendor’s reserve price and the house will sell when the hammer falls. 

The auctioneer does not need to tell you when the property is on the market, but you are definitely entitled to ask and ask, and ask again. 

When you know the property is on the market, you can bid with conviction. You will know exactly how close you are to your budget, and you will understand you’re playing for keeps.

Bidding once the property is on the market tells other bidders that you are serious, and it could give you the psychological edge. It also encourages the vendor to put the property on the market to get another bidder involved.

Bidding only when the property is on the market is one way you can set your own pace during an auction. The auctioneer will be looking to you as a serious bidder because you’ve already told them as much. Holding back until you have all the facts lets you bid your way.

3. Bid with Authority, Quickly, and without Reducing Your Increments

Another way to set the pace during an auction is to know your bid increments and make bids quickly, authoritatively, and consistently.

I’ve seen an auction go up over $100,000 on $1,000 bids alone. An emotional, non-professional bidder can get consumed with the thought of not losing out on a property for a measly $1,000. Never mind the $90,000 over budget he’s already gone!

By maintaining set increments when other potential buyers start to wane, you give the impression that you’re capable of bidding much higher, and even the illusion of deep pockets can be powerful.

This approach prevents you from getting caught up in a back-and-forth mirror match with other bidders, and it doesn’t allow the auctioneer to dictate your bid increments. There may be times when auctioneers don’t accept your bid, but they will always come back to you and accept your bid when it comes to crunch time.

This strategy isn’t about making that “knockout bid”, attempting to underbid, or bidding in odd increments. It’s about consistent, confident bidding and the power that can offer you.

 So, that’s a simple but effective strategy for auction bidding in Melbourne:

• Tell the agent you’re seriously interested immediately before the auction
• Don’t bid until it goes on the market
• Bid strongly without reducing increments.

You can see how these three strategies work together. Telling the agent that you’re a serious bidder means they know your intentions even before you start bidding. Once you know the property is on the market, you can start bidding, letting you set the pace. Bidding only when the property is on the market also reinforces your intent with the auctioneer and other bidders.

Now that you’ve started bidding, you can bid confidently and consistently, knowing that the property is going to sell and further increasing your edge over other bidders as they begin to wane.

And if the property never reaches its reserve and passes in, the agent recognises you as a genuine buyer. Yes, you run the risk of missing out while the vendor negotiates with the highest bidder, but the agent knows about you and will tell their client about another serious party. With this information in mind, the seller is less likely to strike a deal, and they will most likely come back to you later in the afternoon or early Monday.

Now let’s look at a few more solid bidding strategies.

4. Understand Your Budget

Whether you’re teaming up with a buyers advocate in Fitzroy or you’re bidding for yourself, you must understand your budget as part of your bidding strategy.

Your budget shouldn’t just be one number, but a few numbers:

• The Perfect Price: This is the price you’re dreaming of paying for the property – the lowest price you’re likely to get!
• The Realistic Price: How much you think the property will go for. Remember that while underquoting is technically illegal, many property agents will give you a price up to 20% to 30% below the sale price. This might be where the auction starts, but it won’t be where it ends.
• The Price of No Return (Absolute Maximum Price): Every bidder needs to know the number that causes them to walk away, no matter how much they want a property. Never restrict yourself unnecessarily, but don’t bid beyond your comfort levels or financial capabilities.

5. The Opening Bid… When to Pull the Trigger

I’ve already told you that it’s often best to withhold your bid until the property is on the market, and I stand by that. But if you want to employ the strategy of the opening bid, here’s when you might want to do it (and how).

When you get to the auction, try and size up your competition and figure out how many genuine bidders there appear to be. If there are more than half a dozen, you’re either looking at a hot property or a large swathe of bidders who have been duped into thinking the property will sell for far less. Or it could be a combination of both.

Making a comically low bid is pointless and the reaction could hurt your confidence. Making a bid that’s too high could see you paying overs if you’ve misjudged the competition.

But making a strong opening bid in these circumstances could have just the right effect. You show serious bidders that you’re in the hunt and you immediately knock out those early bidders who were never really in the running.

I’ve been to auctions where early and mid-auction bidders have driven up the price only to find themselves out of the race long before the hammer falls. A swift and decisive opening bid can wipe these filler bids off the final price and put you in a stronger position.

A big opening bid can also take the air out of the auction, which shifts the power away from the auctioneer and the vendor and firmly in your direction.

Of course, knowing just how much to bid comes down to diligent property market research, an understanding of interest in the property, and an insight into the expectations that the vendor’s agent has set.

6. Arrive Early and Assume the Position 

Getting to the auction early lets you select your bidding position. It’s a small part of your strategy, but it can play an important role. You want to select a spot where you have a good view of the crowd, and you can monitor your competition for signs of distress, hesitation, or resignation.

If you’re the first to arrive, you can also scope out the different groups and estimate exactly how many active bidders you might be up against. Many people just come to auctions to observe, but if they’re greeting the agent like old friends or they appear to be a professional buyers agent, this is a sign of serious competition. 

7. Master Your Body Language Skills

You don’t want to be the one at the auction who is constantly hesitating. You don’t want to find yourself on the phone every five minutes, and you don’t want to be looking at your partner or an agent and having a conversation in between every bid.

Little tells like this can stall your rhythm, embolden your competition, and ultimately be self-defeating. Conversely, if you see these signs in your competition, you might be in a good position.

So, make sure that you’re confident and authoritative and watch for other bidders who may be off their game.

The auctioneer and sales agents will likely be in full control of their body language. Be aware that their actions are likely a deliberate ploy to manufacture urgency and don’t get drawn into their games.

8. Try This Bidding Strategy at a Slow Auction

A slow auction or a complete non-starter is a sales agent’s worst nightmare. As a buyer in this position, it’s worth remembering that vendors will often lower their expectations, and their price, mid-auction.

It’s up to you to take advantage of the unique dynamics of a slow auction. 

• If there are little to no bids being made, consider throwing one out there. This should be a fair number but a price you know is on the lower end of the range. The vendor will then likely provide a counter bid, giving you more information about whether or not you would like to keep pursuing the property.

• As the highest bid at a slow auction, you can even ask the auctioneer flat out to reveal the reserve price. They won’t like this, and they might not oblige, but the more facts you can get, the stronger your next move can be.

• Remember that the agent will be trying to get the sale over the line. They will do this by trying to bring your price up, but they will also try to bring the vendor’s price down if the auction has stalled.

• If you end up negotiating as the highest bidder, you want the vendor to drop their reserve to meet market conditions, but don’t go too far. Leave your ego out of it and remember that you are pursuing a fair lowered price, not daylight robbery. The vendor always has other courses of action they can pursue, including bringing in other interested buyers, going back to auction, or relisting their property for private sale.

9. Ask a Buyers Agent to Bid for You

If you’re serious about buying a property, you hire a lawyer to handle the conveyancing and a building inspector to check for serious structural issues. 

So many people believe they are on their own when it comes to bidding, but they’re not.

If you don’t have the time, you don’t have the confidence, or you just want the best chance at success, you can hire a buyers agent or buyers advocate to bid on your behalf. Even if you understand a range of different bidding strategies, you might not be able to pull them off yourself in a high-stakes, high-pressure environment.

Buyers advocates feel like an optional extra for so many people, but we leave many other matters in the hands of professionals, and very few of those matters are valued at the million-dollar mark.

You might say that I’m biassed, and maybe I am. As a buyers advocate serving Kew East, Kew, Northcote, and the wider Melbourne area, I’m always going to recommend a buyers agent.

But I’m also honest, so I won’t always recommend myself. The Property Analytics team specialises in finding and securing investment properties and sites with high potential for residential development. If you’re looking for someone to find your dream home, I’m probably not the guy.

But if you want someone to find and successfully bid on properties that generate the sort of profit that investors dream of, consider hiring Property Analytics as your buyers advocate.

10. Have the Fundamentals Sorted Before Auction Day

I won’t dwell on this point, but it’s worth mentioning briefly. For your bidding strategy to be truly effective, you need to have everything else covered before auction day. A buyers agent can assist you with many of these fundamentals, and other professionals can guide you through the rest.

• Have your finances in order, including pre-approval or conditional approval
• Make sure the Contract of Sale has been reviewed inside and out
• Have your deposit locked and loaded 
• Understand the auction process or hire someone who does (this includes any specific auction rules and conditions, such as the deposit required and the settlement period)
• Complete a detailed property analysis and feasibility report
• Get a head start on development planning (as much as practical before securing the property)

Case Study: How Things Played Out When I Bid at Auction on Behalf of Greg in Melbourne

Now that you know a few more bidding strategies, let’s see how they play out in real life. In the study below, I implemented the first three strategies on this list.

I informed the agent of my intentions, waited for the property to hit the market, and bid without reducing my increments.

Here’s what happened.

In this particular situation, I knew the selling agent pretty well and was open with him immediately prior to the auction. I told Jack that my buyer wanted to purchase the property, but I wanted it to pass in. He replied that I better be the highest bidder so that I could be the one to negotiate. This wasn’t my intention, but I planted the seed in his mind.

The auction started with a vendor bid of $900k, and after a big song and dance, someone finally put in a bid of $920k. It went back and forth slowly between 3 bidders, up to $1.116m, and then it faltered.

The auctioneer pointed to me, saying “Andrew, you’re awfully quiet mate?! I’m sure you’re interested”. Without missing a beat, I replied “Is it on the market yet?”

That little interplay helped me enormously because it told the vendor that I was a serious 4th bidder, interested in getting involved – but only on my own terms.

If the vendor wanted the auction to continue, he had to put it on the market. If he didn’t put it on the market now, then it would most likely pass in, and the leverage would swing towards me and the other buyers during post-auction negotiations.

After another song and dance, Jack conferred with his vendor inside and came out excitedly exclaiming that the property was on the market at $1.116m (clearly a bit lower than the vendor wanted, but it was in his interest to take advantage of the emotional environment and keep the auction going).

I went straight in at $1.120m. Bidder #2 went $1.121m, but I bid straight back at $1.125m and knocked him out of the bidding.

Going once, going twice… then bidder #3 came in at $1.126m. Me at $1.130m. Him at $1.131m. Me at $1.135m. Him at $1.136m. Me at a winning $1.140m – we secured the property under the hammer, for $10k below budget!

Bidding at Real Estate Auctions: Where to From Here?

If you are preparing for an upcoming auction – I wish you the best of luck! I hope the tips, strategies, and real-world experience outlined in this article give you the confidence and direction you need to win the day.

If you are looking for buyers advocates in Brunswick and Melbourne-wide for investment properties and residential property development, talk to Property Analytics.

My name is Andrew Stone, and my team and I offer end-to-end buying services, from shortlisting properties to feasibility studies to negotiating the best price at auction, private sale, or off-market negotiations. 

Our property buying process is data-driven and specific to you. To save big money on auction day and generate real wealth through real estate investing, get in touch today for a chat.

Andy approached us in mid 2020 with a common brief:

Find him a profitable development project site +/- $1.3m, oversee all planning and design, tender the build and oversee construction.

We quickly zeroed in on a few suburbs that suited his parameters at the time (note: very few areas in Melbourne promise profitable projects, and these areas change regularly due to trends in land prices, construction costs, supply/demand, resale values, etc) and we identified a couple suitable sites within a fortnight.

Our preliminary feasibility studies provided high level estimates of market values, site yields, costs, equity/debt requirements, and profitability.

Being interstate, we provided Andy with detailed suburb profiles that explained why these target areas suited him. Below is an example of some of the info we include.

Andy, being a relative novice to property development, had plenty of questions, and we were very happy to explain everything to him:

• zoning impacts to yields (number and size of dwellings) through coverage calculations, setback requirements, private open space v secluded private open space, etc;
• how local area buyer demand and demographics impact upon optimal yield and build specifications;
• how we determined resale values based on comparable sales and local agent advice;
• the difference between town planning documents, architectural drawings, and plans of subdivision;
• the key milestones of development projects and how much savings he would have to deploy throughout the project;

After running through the projects in detail, we agreed that this property at 27-29 Grove Street, Vermont was ideal for him https://www.realestate.com.au/sold/property-house-vic-vermont-133375694.

I quickly firmed up our feasibility study, with feedback from Council, our preferred Town Planner, Arborist, Land Surveyor, Conveyancer and a couple local agents.

The numbers stacked up really well, and the unique nature of the Vendor Statement meant that we could quickly subdivide the property into two separately titled lots prior to any planning, which would dramatically de-risk the project.

Via Sale by Set Date negotiations with the selling agent, I secured the 1230 m2 property for a bargain price of $1.241m.

Importantly, I knew the agent pretty well, and, while ethical throughout, she was definitely more forthcoming with information than she would have been with a typical buyer.

Andy duly paid us our Buyer Advocacy Fee of 1.8%. We then provided a Fee Proposal for overseeing the Planning & Design for two large Hamptons Style detached houses, each on their own title and with street frontage.

We liked Andy, and offered him a heavily discounted rate of $15,000 to secure a planning permit and complete all build documentation required for build tender.

I assembled the team of all property development planning consultants required.

Each consultant prioritises my work at a discounted rate because of the mutual respect we’ve built up over many years. They would invoice Andy directly for works, but report to me.

I project managed the entire design process and tied Andy in when his input was required. But given that he is a busy IT Professional and I develop property for a living, he was happy to let me run it with maximum discretion.

Whitehorse Council were unnecessarily difficult, and we copped some stupid delays associated with some trees that their own Arborist agreed were of Low Retention Value and should be cut down (they were weeds FFS!), but we eventually attained the permit for our ideal plans.

We moved onto completing build documentation – architectural drawings, civil and structural engineering, build specifications, etc.

Andy duly paid us once all approvals and documentation was complete. He then appointed us to project manage the build tender and construction on his behalf at a heavily discounted rate of $40,000.

We selected two suitable builders, and went through a detailed tender process for a complete turnkey product that included demolition, landscaping, and everything in between.

Andy accepted my recommendation, and entered into a fixed price build contract with a great builder who we have several projects with.

The strength of my relationship with the builder meant that even though construction commencement was delayed by months due to finance and other issues, he has absorbed the crazy construction cost escalations that have hammered the market over the last year.

Construction is progressing well, notwithstanding COVID-related challenges. I have just made all the detailed specification selections on Andy’s behalf – floorboards, kitchen cabinetry, stone, carpet, colours, etc.

Recent local agent feedback on resale estimates is well above even our most optimistic predictions at the time of purchase.

Andy’s objectives have changed several times throughout the project, from retaining both dwellings, to selling both dwellings, to retaining one dwelling and selling the other off-the-plan. Regardless of what he chooses to do, he will make well over $600,000 profit from this project – after all of my fees.

He will do extremely well out of this quality property development that we have managed for him.

I am really proud of the work that me and my preferred consultants have done for Andy.

We’re looking after the entire project for him for end-to-end while he continues working full time as a busy IT Professional. He’s no doubt learned a lot through the process.

In fact, he’s so happy with the job that we’ve done, he appointed us to find him another property. We got him another ripper a few months ago!

Harriet and her partner have owned their property for nearly 25 years. With their children all grown up now, and the place falling apart a bit, they started talking about selling. Fortuitously, it was around the same time that my team sent Harriet a letter in the mail expressing interest in their property.

Would they be open to selling to me or to one of my clients? Or, alternatively, Would they consider developing their property together in a Joint Venture?

We traded a few emails – no, they don’t have an interest in developing, but yes, they’re open to a simple sale.

The first and most important step in any business dealing involves establishing mutual trust and respect.

Harriet visited my office in Ivanhoe, and asked me about my business as a Real Estate Analyst and Buyer Advocate. I shared some analyses on Melbourne and Heidelberg property trends, and some stories about recent clients I’ve represented, properties I’ve purchased, and developments I’ve completed.

And, we spoke openly and honestly about the pluses and minuses to her property:

• Good sized block of 1260 square meters, with a regular shape; dead-end street; close proximity to shops, trains and parks; within an important school catchment zone; reasonably progressive zone for development
• But, close enough to the main road to cop some noise; neighbouring properties are older unit developments that look tired; decent slope to the block, as well as a couple very large trees that would need to be designed around

She was obviously interested in what I thought her property was worth, and I showed her the written feedback I’d attained from local agents that put the value at about $1.4m. I also pointed to a few recent nearby sales that supported this estimate.

Harriet appreciated how open I was with all the information I’d gathered, and was relieved that I wasn’t behaving like a pushy sales agent.

She, in kind, told me a bit about her family circumstances: kids heading off to post-secondary schools; her and her partner easing into part-time employment with an eye towards retirement in the next 5 years; their need to get their financial house in order; and, her anxiety about selling their biggest asset without a clear plan as to where to move to next.

She was hesitant, but open to selling to me, so we agreed on some simple next steps needed to move the discussion forward…

It was important to both of us that that we get as much advice as possible to inform the transaction.

I certainly didn’t want to take advantage of her, and equally, she wanted to approach things methodically and carefully. So, Harriet committed to contacting 2-3 local agents over the coming fortnight in order to attain independent advice around the market value of her property. And, she said she’d contact a Conveyancer to put together the Vendor Statement and associated Contract of Sale (which she’d need to sell her property to me or to anyone else down the track).

I committed to examining the property in more detail, with advice from my Town Planner, Architect and Arborist, and with reference to the Vendor Statement she’d provide. The aim was to catch up again in two weeks time to talk seriously about sales terms.

The best negotiations lead to Win-Win results, and we achieved this together

The two main terms that need to be agreed upon between buyer and seller are: price, and settlement period.

Harriet spoke to 3 different agents over the fortnight who all came to her property and assessed its value. One agent talked mid $1.3m, another $1.4m, and the last tried to persuade her that he could get her $1.6m!

Now, Harriet’s no mug, and she recognised that the young bull of an agent was probably a bit optimistic (and, may actually be full of it!). She knew that selling directly to me would save her about $10k in advertising expenses and $30k in agent fees, and would also spare her the painful experience of opening her property to inspections and the stress associated with auction day. But, she obviously wanted to sell on the best possible terms.

My detailed analysis of the property went well. A few nasties were uncovered around Tree Protection Zones and Aboriginal Cultural Sensitivity Reports, but ultimately, my team had done a good job in identifying this as a suitable development site.

Was I going to pay $1.6m? No, absolutely not. But, I was willing to pay a bit of a premium for a long settlement period of 18 months.

Would Harriet accept 18 months? Yeah, the long settlement period actually appealed to her – it would give her enough time to ‘get her sh!t in order’ as she put it.

I’m quite happy to negotiate face-to-face, but in this situation it didn’t feel right. This was a massive decision for her (for me too, but I’ve bought and sold dozens of properties, so was confident), and we agreed to go away and think on things.

Ultimately, our negotiations lasted over 2 months. During that time, we traded a fair few emails, and I met with her at her property with an Arborist to firm up assumptions around the trees. After much discussion between them, they agreed that the long settlement was actually in their interest, as it would provide them the time and freedom to plan her family’s next steps.

Harriet eventually determined with her husband that they would feel comfortable selling the property for $1.47m on an 18-month settlement.

The $1.47m price was a bit more than I wanted to pay, but the settlement period would allow me to attain plans, permits, build contracts and finance before ultimately settling on the property. I would allow the 10% deposit to be released to her after the required 28 days, and she would accommodate me with times in which my professional team (surveyor, town planner, arborist, architect, etc) could attend her property.

We’re both satisfied with where things have ended up. But, perhaps as importantly, we’re both really happy about the whole experience.

It went unsaid during all the back-and-forth, but we each approached the negotiations with honesty and goodwill. Not everyone is trying to screw you! And, not every negotiation has to result in a winner and loser.

Selling your property directly to a purchaser does indeed carry its risks, and I wouldn’t recommend it to everyone. But, if your property is suitable for development, and you’re willing to take the time and expend the effort into getting advice from multiple independent professionals (agents, conveyancers, etc), then it is a great option.