Interesting auction bidding tactics – do they work?

It seems insane to bid against yourself at auction, but what makes it any different to a knock-out bid?

The knock out bid is designed to do what it’s name suggests: knock out the competition. So, let’s say you are prepared to pay $900K for a property and people are bidding competitively and have reached the low $800s. It won’t take many $10K bids before your limit is blown. So why not disrupt the momentum of the auction with a bold bid at your maximum amount? It works sometimes. Other times, after a collective gasp, a really serious buyer (or two) manages to recover and knock you out. Small print: only do this if you think the property is worth it and if you are confident that competitive bidding could take the price even higher.

I saw a buyer bid against himself last weekend and it was pretty effective. He certainly scared off at least one buyer in the process. He pushed in with a bid and then confused the auctioneer by almost immediately raising his own bid by $10K. The auctioneer didn’t know where that bid came from and then when he realized it came from the same guy, he tried to refuse to take the bid (interesting move, given that the property had passed its reserve price). So the buyer upped his bid again by another $10K! When the auctioneer rejected that bid also, he spoke up and added another $2K and clearly stated that he was prepared to pay that figure for this property. He certainly stalled the auction for a moment and I think more than one buyer thought “I am not going to bid against that mad man!” In the end, another bidder did take him on and after a few more bids he finally won the property.

My initial reaction was probably similar to that of everybody else who was at that auction: was he crazy? But then I wondered, could the house have even sold for more without his antics disrupting the momentum? And then another question occurred to me: could this tactic be used instead of a knock out bid? What’s the difference between making a bold $25K bid or a succession of five $5K bids? Would that be more effective in scaring off would-be buyers?

This concept of “bidding against yourself” is an interesting one. More than once I have heard the highest bidder at an auction say “I am not going to bid against myself” when the agent quietly informs him/her that they are under reserve price and suggests an increase. And sometimes that is fair enough: such as if bidding has been competitive and the vendor’s reserve is too high. But other times the agent knows that the price reached at a flat auction could be exceeded if the property is on the market for another week or two at an advertised price. Then you wouldn’t be “bidding against yourself”, you’d be “negotiating”.

It all comes down to what the property is really worth and how much you want it.