How do you decide how much to bid when buying property on auction?

Karin Iten, Fsp Invest, 14 Mar. 2014

Tags: buying property on auction, buying property, auction property, property investing, bidding on auction property

Discovering the location and availability of auction properties is as easy as finding the classified ads in your favourite newspaper. What happens next doesn’t have to be hard either. You have to decide how much money you’re going to bid on the auction property. And that’s where we can help...

Determining what to bid on auction property: Here’s how you do it

“Deciding what to bid is simple,” says Dr William G Hill, author of Think Like A Tycoon. “Bid as little as you have to!”

A good starting point is to remember that most auction properties will have an established minimum bid or published minimum reserve.

If the auctioneer doesn’t get this amount, he’ll withdraw the property and it’ll fall into the hands of whoever or whatever repossessed it.

Some auction houses provide what are known as “guide prices”. These are a slight variation of the minimum bid in that two figures are provided, a top and a bottom price.

“The bottom price is the published minimum reserve. The top price is, well, actually nothing. It is, however, expected that the property will sell somewhere in between the two prices, but as you will see after attending just one auction, anything can happen and there are no guarantees,” explains Dr Hill.

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Buying property at auction – stick to this percentage rule

This said, never bid more than 80% of the market value of the property.

The feeding frenzy that can take place when a whole host of people are bidding on the auction property can push it much higher than it’s worth. 

And since auction house love such a feeding frenzy – it’s how they make money – they’ll do anything to create this type of situation

Don’t be sucked in; set your price and stick with it.

Remember, homework is never wasted when it comes to buying property on auction

As Francois Joubert, author of Become a Master Property Investor in 90 Days, explains: Start researching and become knowledgeable about a particular type of property in a particular area as soon as possible.

It’s possible to become an expert in, say two-bedroom townhouses in Sandton. Becoming an expert on Johannesburg properties in less than ten years, on the other hand, is unrealistic. You should look at least 100 properties before you’ll be able to spot a good deal and consider yourself a real property investor.

And remember, whatever time and effort you put into assessing auction properties will bear fruit in future deals even if things don’t work out this time around. And this starts by understanding what the property is worth and how much to bid on it.

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