A Guide to Auctions

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This week’s entry comes from a guest blogger, Toni, who is part of Renovator Auctions based out of Sydney, Australia. She presents to us a Guide to Auctions and how to bid & buy at different types of auctions from cars to real estate and beyond.

For both newcomers and auction veterans, you could always use some new tips and information about bidding at auction.

Introduction

Some people find auctions exciting with the thrill of the chase and the satisfaction when their bid is accepted and they know they’ve got just what they wanted at a fraction of the usual cost. While auctions are a great way to find that car, building equipment, general goods or even a new house, a few strategies are needed to ensure you make the right buying decisions at the right price. It’s important to be fully informed and know how auctions work, so you’re in charge of your buying game.

Chapter 1: How does a Building & Home Improvements Auction work?

Building Supplies auctions can provide a range of high quality building materials to help you with the new home renovation or even building a new home at a fraction of the retail cost. Some materials will be brand new and some recycled or seconds. For example, hardwood, roofing, floating and laminate flooring, pine, paint, doors, windows, timber decking and hardware.

Home Improvement auctions can help also greatly reduce the cost of renovating or setting up a new home or rental property. You can bid on lots of kitchen appliances, spas, bathroom vanities, shower screens, toilet suites, furniture, tiles and more.

How does it work? Being the highest bidder guarantees you a particular item. Generally, a number of items, such as bathroom vanities, are grouped together in a lot. If you really want one of the items in the lot, you will up the price early in order to guarantee you the first choice of items. The winning bidder gets first choice on the items. The second bidder can bid on the remaining items, and so on.

For example, the winner pays $250 to get the best pick. The 2nd bidder might pay $230 for the next pick and the 3rd bidder $200. And so on until either there are no more bidders or no more items. This way most items get sold and most buyers get something.

Auctions can be fun. Enjoy the process. Use the opportunity to save some money and just remember to do your research.

Chapter 2: Tips for buying a car at auction

In this economic climate, more and more people are considering vehicle auctions as an opportunity to pick up a vehicle at a bargain price. Generally, prices are 10 to 30 per cent cheaper than those of your local second-hand dealer. Since you can’t ‘try before you buy’, there are a few steps you can take to ensure you come home having made the right purchase for you and for the price you can afford.

Preparation: Make sure you do your research on the type of car you want to buy and its value. See what similar models are going for on the private and dealer markets. Check out CarsGuide.com.au’s car-valuation service, which gives an accurate price range for specific makes and models, depending on mileage and other features. This is all based on industry sales data. You would be wise to attend a few auctions first to see how they operate, so you’re confident with the process.

Check out the car in detail: Inspect the cars you are interested in. Even though you can’t take them for a test drive, you can inspect them. Why not bring along your mechanic for his viewpoint too? Make sure the car is, and has been, well maintained. The service history should be available to

inspect. If you can’t see a condition report, or it’s incomplete, let it go! Otherwise you might be up for lots of extra costs in repairs. A condition report should detail any services the car has undertaken and its current condition.

Bidding online: Too many people get caught up in the emotions of auctions and getting pulled into the ‘I must win’ mentality. To avoid this, you can bid online. This also is a timesaver if you’re busy. Still, do your research and inspect the car in person beforehand.

Chapter 3: How to bid at a real estate auction

The reserve price at a real estate auction is the lowest price a seller will accept for their property. Concentrate on this price and you could save hundreds or thousands of dollars. It’s your checkpoint.

If you can’t make the auction or feel nervous about overplaying your hand, try an absentee or proxy bid. Most auction houses and realtors offer this option.

If you are going to be bidding co-jointly with another person or are representing another person or company, you must register your intention to bid on arrival. So make sure you have your identification and a letter of authority from anyone you are bidding on behalf of. (This must include their name, address and number of their proof of identity). If you arrive after the auction has started and wish to bid, you will need to quickly find the agent and register or present your proof of identity,

if you have pre-registered.

Using a buyer’s agent to do a proxy bid stops you from getting emotionally attached and over- bidding. A buying agent knows how to not be put off by aggressive bidders and know the strategies of bidding well.

The auctioneer can set the amount by which bids increase, called ‘rises’ or ‘bidding advances’. You can make an alternative bid, which the auctioneer may accept or reject. Usually the amount the bidding advances decreases as the auction gets closer to finalizing.

Some sellers will consider pre-auction offers, which you can make through an agent prior to the action through a signed contract. The process of negotiation is the same as that of a private sale.

Note: If your offer is accepted less than three clear business days before the auction date, you do not get a cooling-off period.

More tips:

Research the market before you bid (search the internet, attend auctions, speak with several agents and monitor auction results)

  You will not be able to bid at an auction of residential and rural property in NSW unless you give the selling agent your name and address and show proof of your identity.

Ch 4: How does a general goods auction work?

At a general goods auction you can bid on a wide range of things such as electrical equipment, furniture, camping equipment, tyres, lights, tools, office equipment, collectables, jewellery, clothing and household items. The list is pretty much endless.

When you first arrive you will have to register and give your personal details (name, address and phone number). You will be given a bidding number on a card and a printed list of items to be auctioned. Each item on an auction list will have a number, which will correspondent with a number of the physical items displayed around the auction room. Usually there isn’t an in-depth description so it’s good to have done some research beforehand or to use your smart phone for a quick Google search on the products. Have a good look for any faults. Find out when the goods are open for viewing. It could be a few hours before the auction starts, so give yourself plenty of time.

The auctioneer usually stands at a pulpit at the front. He goes through the list with assistants bringing out the items for a visual reminder. You will use your personal bidding number when placing a bid. Before the auction finishes (about 3⁄4 of the way through), you can usually go ahead and pay for and collect your goods. So you don’t have to hang around for the whole auction. Delivery contractors are on site usually for delivery of heavy goods. Take your purchases home the day you buy to save on storage fees.

Bear in mind that there is a commission to pay to the auction house ON TOP OF the winning bid. This is where they make their money. It can range from 10% to 25%. So keep your calculator on hand when you’re bidding, so you know what you will be paying in reality at the end.

Ch. 5 How does absentee bidding work?

Let’s face it. Not everyone has time to go out to the auctions to bid on the day. That’s why some of us buy our groceries online. Time is a premium. If you see an item you like either on an online catalogue or in an auction house one day, you can bid in real-time on the internet. But sometimes even that won’t suit. So you can instead place an absentee bid.

When you find a lot want to bid on, register online (or at the auction house) that you want to participate in the corresponding auction. Once approved, go back to the lot page and put in the maximum amount you wish to pay for that lot. That maximum amount is absentee bid (left bid).

You can place absentee bids up to one hour before the start of the live event. Once the auction starts, the auction house processes all the absentee bids and calculates the winning absentee bid i.e. the second highest bid plus one bid increment.

This winning absentee bid value is then communicated to the auctioneer.

Here is an example:

– Susan places an absentee bid of $2,000 for Lot #112
– Penny places an absentee bid of $2,500 for Lot #112
– Wendy places an absentee bid of $3,000 for Lot #112
– Once the auction house clears all absentee bids, Penny will be announced as the winning bidder with an absentee bid amount of $2,600 ($2,500 plus one bid increment of $100).    
– When the live auction starts, the auctioneer is informed of the Internet absentee bid for $2,600. If no higher bids are received during the auction, Penny will be the winner. However, if a floor or real-time Internet bidder places a bid above $2,600, the Live Auctions system will then bid on Penny’s behalf up to her maximum of $2,000.

You should become aware of a matter called footing, which is explained in Chapter 7.

Chapter 7: What is footing and how to avoid it?

We’ve discussed that absentee voting is a great way to place a bid on a lot even if you can’t attend either in person or in real-time via the internet. And we learned that usually the absentee bidder with the second highest bid plus one increment wins becomes the highest absentee bigger. But even if they have placed their bid their earliest and is the highest, another bidder on the floor may still win with the same bad. This is called footing and occurs because auctions are conducted in set, fixed increments.

Here is an example:

Sam places an absentee bid of $2,300

John is on the floor bidding live

The auctioneer opens the bidding at $2,000, which goes to Sam

The next increment is $2,100, which Tom raises his paddle for and wins

The computer proxy bids to $2,200 for Sam

John places the next bid and wins the auction at $2,300.

What happened is that the computer was unable to bid up to Sam’s last absentee bid of $2,300 without bidding against him. How can you avoid this happening? Make sure your absentee bid is the maximum amount you’re willing to pay. If not, raise it.

Remember, the auctioneer will call out the first bid seen or heard. So if a floor bidder catches his attention before the Internet bid is called in by the clerk, the floor bidder will win. It’s just the way it works.

You can find Toni’s the original blog post here.