Buying investment properties through auctions are often deemed a risky business, but in all types of businesses, proper research can arm both the vendor and the buyer the knowledge they need to achieve their specific financial goals.
Auctioneer Tom Panos believes that one of the most relevant issues for property investors is determining the value of the property—from the start of the bidding to the eventual selling.
He shares some of the lessons he learned about the property auction process, as well as how investors can secure a good deal:
How do vendors come up with their selling figure?
Tom Panos: That’s generally done in the four weeks leading up to the auction. Usually in real estate, what agents and auctioneers have got is called the hope-to-get figure. The hope-to-get figure is the figure that an owner is hoping to get when they first list their property for sale. The reality is the hope-to-get figure that [the] vendor’s got is generally higher than how much it would normally sell. Most times, when an owner is thinking of selling, they are looking at life through rose-colored glasses. Most people think that they’ve got the smartest kid, most people think that their house is better than any other house—it’s that emotional connection that you’ve got for it.
When is the selling figure actually finalised?
Tom Panos: What we clearly know is that over the four weeks that the property's been in the market, after getting some offers and after getting some feedback from the marketplace, owners reassess their expectation and in some instances, they may reduce it by 5 per cent. In other instances, in good markets and in hotspots of Australia, they’ll get that number and they’ll exceed that number. That is a work in progress—it happens right up until the day of the auction. Many reserves are actually set at the morning of the auction.
How do buyers determine a good buy at property auctions?
Tom Panos: What’s the number that the buyer should be thinking of? Well, their project is quite different. They’re not sitting there talking to other buyers. They should be looking at sold results. There’s a great saying: ‘There’s no longer any blind dates in business’ You don’t have to be surprised at results. Everyone knows the price of everything. That information is provided via portals, by companies. It is readily available. If you go to websites like realestate.com.au and check out the ‘Just Sold’ section, you can work out the values. Your research is done during the weeks leading up to the auction by looking at sold properties in that area.
Tune in to Tom Panos’ episode on The Smart Property Investment Show to know more about the mistakes often committed by investors at auctions, as well as the simple secrets to finding and securing property bargains even in hot markets.