Common Mistakes to Avoid at a Property Auction
If you are looking to buy an investment property, you do not have to restrict yourself to the conventional channels of working with real estate agents and searching real estate listings. You also have the option to purchase a property at auction. In many cases, property auctions are an excellent way to avoid uncertain, lengthy, and tedious buying procedures and bag a bargain. Many real estate investors in the US resort to property auctions as they can explore a wide array of options at their disposal and buy an investment property at a price below market value or a discount.
Savvy real estate investors who have carefully mastered this process can generate a great return on investment (ROI) on a regular basis. However, heading to a real estate auction with the intention of making a purchase can often be a nerve-racking experience, particularly if you are new to the real estate world. This is because purchasing a property is often an emotional experience as it is one of the biggest investments you will make in your life. In addition to that, real estate is a competitive industry. Bidding wars may quickly get emotional and heated, depending on the location and type of property.
The heady combo of risk, several strong-arm tactics from other bidders, and the likelihood of unwanted surprises often make real estate auctions a daunting and intimidating prospect for many potential investors.
These are some of the biggest no-nos in the property auction arena.
Lack of Preparation
One of the most common mistakes that real estate investors, especially beginner investors, make at property auctions is that they arrive underprepared and end up playing right into the hands of the auctioneer. Keep in mind that being unprepared on the auction day can play havoc with bidding, including the vital due diligence phase of the process.
Research from banks and lending institutions reveals that more than 62 percent of buyers arrive at a property auction with no bidding strategy in place, which is very risky. You should do your due diligence and get familiar with auction terms and conditions, figure out deposit payment and financing, and perform a thorough and comprehensive real estate market research in advance.
Showing hesitation
It is normal to be a little nervous and hesitant when you go to a property auction, especially for the first time. However, you should never let your nerves get the better of you. It is worth mentioning that the way you present and compose yourself can considerably affect your odds of winning a property auction. Note that buyers who pause in the middle of an auction to confer with their friends or family about their limit may be showing their hand. And a lot of bidders give up well before their limit.
Note that showing signs of hesitance can cost you a sale. Many novice investors usually focus on their competitors rather than sticking to their maximum budget and real estate investment strategy.
Savvy buyers, on the other hand, attend as many property auctions as they can in order to watch the theater of how successful bidders behave, understand their body language, and watch their interaction with the auctioneer. You should be confident and assertive from the moment you arrive at a real estate auction until the moment you finally sign a contract. You should stay composed and focused on your investment goals. Stick to your bidding strategy, plan, and your budget limit.
Making a Low Offer
Many bidders start too low and end up inviting other bidders into the auction ring. You should keep in mind that the main aim of a real estate auction is eliminating as much of the competition as possible.
This is because, with a small bidding pool, you have a much higher chance of winning. And it also means fewer people, which means fewer bidding mistakes, and less stress as there is no need to rush the process. So, a common mistake is to make a low-ball offer. You should go in with a strong and confident bid to knock out several contenders early on.
Of course, you do not have to breach your spending limit, but instead of bidding a couple of hundred each time, it is better to increase it to a larger sum like $10,000.
Letting Emotions get in the Way
Buying an investment property, whether commercial or residential, is an experience fraught with emotions. You will feel nervous, excited, agitated, scared, enthusiastic, and wary all at the same time. Hence, property auctions are often high-pressure and accompanied by plenty of emotion, causing a lot of real estate investors to make hasty and irrational decisions. These emotions can easily cloud your judgment, forcing you to make snap decisions you will regret later. However, it goes without saying that emotions aren’t helpful in a real estate auction.
Property investors who fail to keep their different emotions in check are likely to get caught in and carried away with the momentum of the auction room. You should stay calm during an auction and know your bidding strategy in advance. You should also set an upper limit price before entering the auction room in order to avoid hastily bidding much higher than what you can really afford. The key is to remain practical and don’t fixate your attention on leaving the auction room with a real estate contract; keep in mind that sometimes your goals will not align with what’s being offered.
Not Arranging Finance
This is perhaps the biggest mistake that a bidder can make. Most auctions require successful property purchasers to sign an unconditional contract. Many property investors often neglect to arrange for financing and are unable to commit to the property. Keep in mind that finance approval usually requires more than only a phone call or an online inquiry. You should plan your financing ahead of time and, if necessary get mortgage approval.
Final Thoughts
Steer clear of the mistakes discussed above to increase your chances of winning a property auction. At the end of the day, the more confident and prepared you are for auction day, the better the auction result will be.