You should set your limit, your maximum bid, before you go to auction. So, how do you set a maximum auction bid?
First of all, you need to forget all the other buyers and forget about the vendor, just for a moment. This is about you and the property. It’s about how uniquely this property suits your needs and how much you want to buy it.
5 Key Questions:
There are five questions you need to ask yourself. You can’t rely on the answer of any one of those five questions, you need to consider the whole lot:
- How much do you want it?
- How much does this property suit your needs?
- How good is this property?
Not just in terms of how it suits your needs, but generally in the marketplace, how popular is it?
- How much is this property worth compared to others in the area?
This is where it’s crucial that you have done your pricing research.
- How much can you actually afford?
How do you set a maximum auction bid? Well, no one answer should dictate your maximum bid, you need to consider all five questions.
Lets give you some examples:
If you only consider how much you want this property, or how much you can afford, you really do run a risk of paying far too much money for it. I’ve seen people go to auction, and they set their limit at their budget with no real regard as to whether the property’s actual worth that or not.
On the other hand, if you only focus on what that property is worth in the context of the rest of the market, but it really, really suits your needs in a way that is very unique, then you could miss out by not being prepared to pay a premium because it suits you so well. And, if you focus too much on what other buyers may or may not do you run the risk of buying a property purely because you can, because you want to win, not because you really want it, or not because you really wanted to pay that price.
A helpful way to think about this is that if you woke up the next day after the auction, and you bought it, at what price would you say I am really happy with that, versus I feel sick, I paid too much? You really do not want buyer’s remorse the next day.
Another way of looking at that is: if you wake up the next day after the auction, and you didn’t buy it, and you think, oh, I really should have paid that. Or, do you think, uh, I’m relieved that other buyer paid way too much? So, by being really clear on what your maximum bid is going to be before you go to auction you are less likely to be unconsciously drawn into competition.
Remember: People get into competition at auction all the time, and the odds are against you, so be very, very careful.
Published: 5 May 2018
DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.