#12: Mastering Property Auctions

[00:00:11] Melbourne will be hot throughout the day reaching a high of 38 degrees with a late change and possible thunder in the evening with a forecast low of 17 degrees. First time, second time, third and final time, it's sold.

[00:00:35] Hello Melbourne, I'm Lisa Parker and together with Kate we're bringing you a dose of our property market in detail. I'm Kate Bakos, Lisa and I are both buyer's agents who work on opposite sides of the Melbourne market and we've clocked up over 40 years between us in the property industry. Join us each fortnight to hear some exciting stories from our coalface, market trends and some juicy auction updates. This collaboration has been a long time coming, we hope you enjoy.

[00:01:05] Well hello everyone, it's great to be back in the studio with my dear friend Lisa. And today we're chatting about something that has a bit of a common thread with death, public speaking and spiders. No surprises, it's auctions. People tend to hate auctions and we were just chatting about this off air. How many times do you have people meet with you to onboard and get their strategy together?

[00:01:32] And the key thing they say to you at the onset is, I'm happy to buy a private sale or whatever but I'm not prepared to buy at auction. I would say probably 40% of clients that I work with, open with, I don't want to buy at auction. Yeah, me too. It's a really confronting statistic when you think about how many good properties are sold via public auction. Yeah. And in reality, most of them overcome that whilst we go through the process.

[00:01:58] There are a few people that we won't buy for at auction but that's only for very good reason, it's to do with their finance. Yes. So, I wonder what it is about auctions that make people say, well, I'm happy to buy, I want to buy a property but I will not buy at auction. What's the reason? Let's tease out a few. We've got a few here. Well, the first and obvious one is that on stage terror, you know, a bit like public speaking. You're standing in front of a crowd, there's a guy with a gavel yelling at you. So, I don't think that's the main component though.

[00:02:28] I don't think that's the most significant reason. What do you think? I don't think it is either. I mean, look, I think there's a lot of emotion that goes into the whole process for people and it can be completely overwhelming. And I think there's probably a lot of things underpinning that fear of rocking up at auction. And it can be, are we making the right decision? Are we going to get the property? Is it the right property for us? Have we got the right budget? Have we missed something? I think is super important.

[00:02:55] It's one of the reasons why we get hired a lot is I'm scared that I've missed something. And what is the risk of missing something at auction? And I'm just, it's a rhetorical question here. It's huge. Because? Because you lose money. And when you lose money on property, it usually runs into the tens of thousands of dollars. It's not a $1,000 mistake. I mean, mistakes, a big mistake. Yes. I remember rocking up at auction.

[00:03:20] I just watched the auction, but I was on the property for a client and we got a building and pest inspection completed. And based on the building and pest inspection, we pulled out of going for the property. But I happened to be in the area doing inspection. So, I attended the auction just to see what happened. And there were seven bidders and they were all first home buyers. It was here in Kingsville and it was a cheaper property because it wasn't the beautiful period style homes. It was more of that, you know, single fronted brick home.

[00:03:47] And it was riddled with termites. And so, seven brand new first home buyers batted it out. It eventually sold at probably the top of what I would have wanted to pay for it had it not have had termites. But that whole property was going to need to be gutted and new stud walls were going to need to be built.

[00:04:09] And no doubt that will become a big surprise to that purchaser when they start to renovate the property and they find that the walls are riddled with termite damage. Yeah, my goodness. That is certainly, you know, a high fear for a lot of people. And circling back to auctions and why they make people quite nervous. It's because you have to buy unconditionally at auction almost all the time. I've got exceptions to the rule.

[00:04:37] But in a normal balanced or hot market, agent will not accept any conditions. So, you're buying unconditionally. You've got to do all of your due diligence first. You've got to pay for your inspections and any items that you need clarified before you put your hand up. Because once the hammer falls, you've got to go inside and sign and there's no calling off. A lot of people don't actually realise they're buying unconditionally. I've seen circumstances where people have purchased and then they think that they can get their building and pest inspection done or they can get their loan approved.

[00:05:06] And yeah, that's pretty wild. I only had a buyer last week who wanted to engage me to purchase a property and that spotted it. They're in love with it. And so, we had a catch up together and talked about the property. And she said to me, oh, by the way, our mortgage broker has said that we've got to be subject to finance. And I did scratch my head. Honestly, Lisa, I thought how long has this mortgage broker been working in the Melbourne market? Because most of them would know that when it's an auction property, you don't have that option.

[00:05:37] For sure. But it's definitely a fear. Now, sometimes you see people at auction who are a bit anxious about being seen by others. Not because they've got stage fright. It's because money is a very personal and private thing for them. They don't want people to see them transacting. Or they're well known in the local area. They might be local business owners and are well known and they don't want people to see that they've bought that home or how much they've paid for the home. Yeah. I think that's more to it.

[00:06:02] And you and I would know from the high profile or media entity type people that have engaged us over the years. It's usually to protect their identity. Yeah. We often hear stories about people who've had bad experience either as a seller or a purchaser at auction. And that can be another reason why people are fearful of it. In fact, I was speaking to my neighbor recently and he is selling his home and he chose one agent over another.

[00:06:30] And the reason why he didn't go with the other agent was because the other agent was suggesting auction. And he said, you know, we went down the auction path before and it didn't work well for us. So, we didn't want to do that this time around. And then conversely, I was on a property recently where we wanted to buy the property and we had to wait a whole four weeks to be able to do it. Because the vendor had had such great success at auction at a previous time, completely different market conditions. Yeah.

[00:06:58] And so, she wanted to have her day in the sun and see it go under the hammer because she thought it was going to fly. Anyway, it worked in our favor in the end because we actually got the property for less than what we were prepared to pay for it before auction. And so, it worked in our favor. But previous experiences, both negative and positive, can really influence somebody's decision. So true. A lot of people suggest that they've been burnt by auction before.

[00:07:22] And I would argue that there's not too much room there for people to get burnt at auction unless they play their cards wrong. And we'll chat about that soon. People usually feel burnt when they've fallen prey to the underquoting. And they've just not done the homework and they've come with an insufficient budget. And that's another fear that people have. If it's going to auction, it will fly. Just because a property is being sold via auction doesn't mean it will fly. It doesn't mean it deserves to have a high price.

[00:07:48] It often is that vision of seeing it go past its quote range or have a reserve above the quote range that has people feeling burnt or played. Do you think that on the topic of quoting and properties flying at auction, is it a gut feel that you have when you think a property is going to fly? Or are there signs that a property is going to fly? It's mostly signs.

[00:08:13] The only time it will be gut feel is if we're in a reasonable market and the property is just one of those really superbly presented, laid out, located. You know, the crowd-pleasing property is the one I'm talking about. You walk through it and you can't fault it. All the proportions are great. The styling's great. The things that you can spot though, so when you get signs, it's how many people are attending. We have a dialogue with agents that's different to what, you know, an inexperienced buyer will have with an agent.

[00:08:43] We can say how many have you got on it? How many have come through and asked for contracts? How many have done building inspections? I'm sure you're the same. 99% of agents open up their iPad and go into that box and dice platform or whatever it is that they've got. And they are whizzing past names and I can see all of the green dots next to the names. And I think, yeah, okay, they've got six or seven or eight or ten others running on this. It's going to be competitive. So we do get that intel, but you can sense it if you're at the open.

[00:09:08] You can see how many people are there and what they're saying to the agents and how excited they are about, you know, taking photos of the house or talking to their friend or their family or partner about it. So we definitely get a feel. But it's that intel that I get in the last week or the last couple of days before auction that really lets me prep for whether it will be heated or not. Because things change so rapidly over the course of a four-week auction campaign. Yes. For me, there are the obvious signs that you mentioned.

[00:09:36] But sometimes I walk through a property and I have a gut feeling about it. And where it becomes tricky is when all of the information that I'm getting from the agent is contradicting what my gut feeling is. And so I do rely on both. And I've learned over time that that gut feeling is always right. But obviously there's skill and tactic in getting the right information as well. But sometimes it is in conflict of what I'm feeling. And then the agent says, oh, it was a complete surprise to me.

[00:10:05] And I'm like, but what's it? Actually, that's really good. Because sometimes the agent's mood around the conversation we're having about their property, I can sense when they know it's running hot. And it's not my mission to walk through a property and say, can we buy it prior to auction? It's not the first question I ask at all. In fact, sometimes I want it to run to auction. But you can tell when an agent has a lot of interest on a property and they don't need to workshop you and your buyer particularly hard.

[00:10:33] You know that when, you know, you're just another flyer. They're so relaxed, aren't they? They're so chill. And the same thing with getting through. Oh, you know, can I get through tomorrow because I can't make Saturday? Yeah, no, sorry. And then that's an agent that has the auction covered. That's right. Because otherwise they're bending over backwards to get you through. Yeah. So the other thing that scares people, this is probably, I think this is probably one of the ones that's right up there, is perceiving that all auctions fly well and truly past the quoted range. And so there can be a little bit of fear of that, which is understandable.

[00:11:03] But not all auctions are the same and all agencies and agents quote differently. So there's no blanket rule that, oh, just because it's Melbourne, we should add 10% to the quote range. We can't actually operate that way. We have to really understand the asset and also the area to determine whether or not the quote has actually been fairly applied, if it's realistic or if it's underquoted.

[00:11:28] And we all know that when something's underquoted, there will always be far more bidders and many more offers on a property when it is underquoted compared to when it's quoted correctly. Yeah, that's a great point to make. The last one I think we'll touch on is just mistrusting the process of auctions and just feeling, I guess, a little bit unsafe or a little bit unsure. I think you and I professionally have a very, very different perspective on this because for me,

[00:11:55] my worst case scenario for buying conditions is best and final offer and no visibility of what anybody else is doing. And sometimes we will get really good intel from the agents, which really gives a great picture of where everybody else is at in that offer process. And we have good security over that, particularly if we've worked with the agent many times before and we know we can trust their word.

[00:12:20] But sometimes agents will hold things very closely to their chest and it takes a lot more work for us to ascertain exactly what's happening with those other buyers. And it's very easy, I think, for agents to give us the illusion, give buyers the illusion that something is the case. And if you don't ask those extra questions to really qualify it, you can soon figure out that that information that they're trying to leave us with is actually not the full picture. Yeah.

[00:12:47] So I can understand buyers feeling that way about auctions, but I actually think an auction is actually a better way to go because you've got complete visibility of exactly what every other buyer is offering and bidding on the property. That's right. And you can be confident on the day. And in that moment, that snap moment where you've really just got minutes and seconds, your bidding can have an impact or an influence on others' willingness to pay more.

[00:13:16] Or, and sometimes it doesn't go your way. But if I think about all of the auctions that I've been at where I absolutely know that my bidding style, my level of confidence just overcame them and they decided to stop. And you know when they come up to you afterwards and ask for a card or they're crying or they tell you they had more, that you were an effective bidder. Yeah. I think one of our colleagues was sharing with us, I'm not sure if you were there at this time or not,

[00:13:41] they were sharing with us that they had, they were up against, they won the auction. Another bidder came up and they were actually apologizing, saying, I'm sorry, I'm sorry. Every time they put a bid in over and above our colleague. And then that person came up to them at the end of it. And they actually engaged her to purchase or attend the auction for them because she did so well at the auction. And during that consultation confessed, we actually had more money, but we were so scared to bid against you that we didn't.

[00:14:12] Wow. Okay. Well, that's effective. I would love to chat about some of the attributes that we've seen with non-professional bidders. So, you know, regular buyers out there who were going it alone. What are some of the attributes that you've thought are really impressive? Because at the end of the day, our listeners are wanting to channel a bit of professional bidder ability and we see it out there all the time. I think the two that stand out to me the most was one in particular was in Brunswick.

[00:14:40] And it was a young couple and the female was standing right in the middle of the crowd, sort of front and center. The crowd was all sort of behind her. So, she was standing in the middle of the road and everybody else was sort of standing on the other side of the road around her. So, and she held her cool for what was a very long and fast auction. And she held her cool so incredibly well and her focus.

[00:15:06] I was just beaming watching this young lady go for it. And then when she was successful at winning the auction, all of her family raced over and hugged her and she was crying and she was shaking. So, she held it together and then all of the emotion became really visible. But I was so impressed with her bidding and it was her focus and she was there to win the property. And you could just tell they'd been on a really long journey. This was the one. They weren't letting it get away.

[00:15:35] And I think when buyers have lost quite a few auctions, they've been at it for six months, nine months, ten months. And that's when, you know, you really see them perform well at auction because they've, you know, they've been to six or seven by this stage. And yeah, that's a beautiful story. Yeah. What about you? Well, it was only about a month ago. It was one of the first auctions for the season. And I'm bidding on this property that is, you know, in the highest price quartile in my own suburb.

[00:16:06] And it was a perfect, you know, tick, tick, tick kind of property. It was beautiful. And there were quite a few bidders. And I knew that I had competition. I was told that I was bidding against young families. And there was a woman standing against a car. She would have been, I don't know, mid-30s. She just had an air of confidence. I thought, yeah, you're bidding. What's the story? Anyway, she was amazing. Just like you described, held her nerve straight back with the numbers. I felt like I was bidding against myself, to be honest.

[00:16:35] She was really, really confident. And she won the keys to the property, which was great for her. And then there was that ecstatic shout out and hugs and high fives. And she was bidding for her sister. Wow. It was very cool. She was great. Wow. Good on her. That's great. We'd love to hear how some of our tips are helping you on your property journey.

[00:17:01] If you'd like to get in touch with us, jump onto our website, themelbournepropertyhour.com.au. You can either leave us a written message or you can record it as a message. Let us know what you'd like to hear more of and tell us a little bit about some of your successes. If you're enjoying the show, please tell your friends and click the follow button on your preferred podcast platform. Now, I want to chat about some bitter mistakes.

[00:17:31] And as humorous as some of these might sound, they would have been nightmares at the time because these are true stories. And let's begin with buyers that toy with the auctioneer. They risk being banned from auction participation if they really annoy the auctioneer because one of the auction rules is that the auctioneer can determine who bids and which bids they'll accept. So, have you seen situations where people have been banned?

[00:17:57] I haven't physically seen it myself, but I have heard of people being banned from auction. And I've heard it both from professional bidders have been banned from bidding at some agents' auctions because their tactic was to intentionally cause a little bit of a scene. Either by calling out things or saying things that would undermine the perception of the property and whether or not the property was a safe property to be purchasing.

[00:18:27] So, deliberately putting doubt in the other bidders' minds or calling out things to the other bidders. Or just playing silly buggers, you know, like walking through the crowd, you know, deliberately distracting people by fast pacing across right across the front of the auctioneer and just playing those silly games. And I think it's one of the biggest mistakes that you can make is to annoy an auctioneer. And I've heard like an auctioneer has said to me that I made her pay more because she annoyed me.

[00:18:57] I could have put the hammer down much earlier, but I extracted the extra 40 grand out of it because she annoyed me that much. Yes. Yeah, if they want to be vengeful, I'm sure they can. The scariest thing for anyone is being told that their bids aren't being accepted. That would be a nightmare. And I've seen it. I've seen it twice. One was a guy in the crowd that was being a prat and it was clear that he was just making trouble. And the other one was a professional bidder. That was pretty horrifying.

[00:19:24] In fact, I remember on a Zoom auction, someone not behaving themselves and the auctioneer literally muted them. Oh, wow. You could see them throwing their hands around. Oh, I want a bid. I want a bid. But no, I'm muted. So yeah, it can happen. Another thing that we'd see every single weekend and people obviously aren't doing this every week of their life. So it's a very stressful thing to go to auction.

[00:19:48] But when you're consulting with your partner and it looks evident that you haven't got a clear plan, that's like a shark smelling blood in the water. Especially for a professional who's watching and reading lips and seeing what you're discussing and, you know, your body language, the look on your face. We know when you're out of money and you probably should be stopping bidding.

[00:20:12] Which leads me to actually another mistake I think people make and that's not observing what other people in the crowd are doing. I've seen people just not read the room correctly. Yeah. And they've ended up paying way more for the property than they needed to if they had have handled themselves differently but they just haven't read the room properly. Yeah. Are you thinking like slam bids, big aggressive bids when you just need to come back with an extra one? Yeah.

[00:20:38] And also conversely not going that extra one when that other person was right at the end of their budget and if they just went a few more and they had more to go. But they just made – it was more of a reaction like, no, let's just stop. And it's more of a reactive, no, let's just pull out rather than actually see it through. And it's just because they didn't have the experience behind them or the composure and they weren't watching and reading the room properly. Yes. You and I know when someone's at the end of their tether. Yeah.

[00:21:07] We absolutely do. Sometimes I'll have clients when they're setting their budget and they'll say, oh, you know, this is where we want to land. But if you think we could get it for another five – and I have to say to them, if we're at the pointy end, the very pointy end and they're painfully extracted bids from the other side, your extra five will probably get there. Let's talk about what your real limit is because at that stage in the auction, I only want to be bidding if I can sense that we've got a good chance of getting it.

[00:21:36] You know, if someone's bidding in 50s and we're down to $1,000 units, well then clearly it's not going to go our way. Yeah, for sure. What are some of the other mistakes that you've seen at auction? Well, to your point earlier, I'm letting it – missing it for a price that was actually good buying because you've fallen prey to underquoting and you think that you're paying a premium. You're actually getting a bargain. It might have just – how many times have you purchased a property when you've had the bid that's landed you at the vendor's reserve?

[00:22:06] And they've gone inside, they've come out, okay, ladies and gentlemen, we're on the market. We're playing for keeps. Who's going to get the keys? And then the other side says no. Like that's the best day of my life when that happens. Because you've got it on the market for that critical bid. You haven't had to pay $1 more than the vendor's reserve. Now when it's a reasonable reserve, that's a great day. Have you seen when some really skilled agencies have their staff helping people bid?

[00:22:36] And it's amazing to see. I was up against this recently and had the agent not have been there, I would have won the auction. But the agent coached the other buyers to extend $100,000 beyond what they were going to pay for this property. He was so skilled and did a great job for his vendor. That was fascinating to watch. Yeah, it drives me nuts and they are very good at it.

[00:23:02] But sometimes you can hear them talking and they're taking the buyer back through all of those bad memories of shopping every Saturday. And you can see the dialogue like this could be over. I reckon that's her last bid. Yes. I move across the crowd and stand closer to them when they're doing that. Yeah. And when they use that line, I think she's getting towards the end. I just turn around and loudly say no, I'm not. Heaps more. Yeah. You just want to be sure it's not going to pass in. Like I know that we're segwaying here, but can we talk about a few of those tactics that the agents use to do it?

[00:23:32] So the most effective ones, they really start talking very slowly and very calmly because they're trying to calm the buyer down and get them to really listen to everything that they say. This is a trick for parents. If you want your kid to listen, you actually start whispering and talking really calmly and quietly. And it works on buyers as well. And so they'll just have this calming effect over you and you're listening to every word I say. And that's one of the main thing.

[00:24:01] And you'll hear them and you'll just go, no, it's okay. Look. Take your time. We don't know. We don't know if this is her last bid or not. Let's throw in a really big bid and see if we can get away with. Let's test her. Yeah. Let's test her. Yeah. You can hear it. And they buy time as well. They'll give the auctioneer the knot. And then the auctioneer will talk about, you know, his favourite flavour ice cream down on the Strand. He's keeping the crowd amused while this agent goes into magician mode and gets the buyer thinking about stretching a bit more. Yeah.

[00:24:31] And why don't we just try it? Let's just try it and see. So the agent's not being strategic about their bidding. They're just keeping the buyer in it and, you know, saying all the right things to get more and more and more money out of them. So I've had agents come up to me and try to help me with bidding and I swat them away. I'm happy for them to stand there and tell me jokes and talk to me while I'm bidding, but I don't need their help or encouragement. Absolutely not.

[00:24:56] So, yeah, I tell buyers if they're going to bid auction and the agent comes over to them, just walk away because the pressure actually can be quite intense. Well, that's the critical thing about setting a budget for auction, isn't it? You've got to pick a number that no matter what happens, you've got no regrets. Yeah. You don't want regret for missing out when you should have gone higher. You definitely don't want regret for buying something that you pay too high a price for or you can't finance or you're stressing about financing it. That's not what we're about.

[00:25:23] I think choosing a budget for an auction is really tough for buyers. I mean, you and I have got a process that we work through to help our buyers set that limit that they feel good about and they don't have regrets over. But for buyers, it can be without that framework, I guess, to work through. They're just choosing an arbitrary number and sometimes it's not based on solid thinking. And so that's another mistake is, you know, not having a framework to set that budget with. I agree.

[00:25:52] I think not having a plan is walking in with a blindfold on, you know, what is the number that you stop at? How do you know you won't have a valuation shortfall? How do you know you won't miss it for a price that was actually fair? Visibility is everything. I always feel sad when I see people muck up the passing opportunity. Imagine you're at a good property, the market's going a little bit sideways or it's contracting or it's not a great market. There's a good chance that a quality property will pass in.

[00:26:21] But if there's a couple of you there waiting for the opportunity to negotiate and none of you put your hand up, then it's just converted to a competitive private sale. Yeah, I think that's where the psychology of it comes in as well because when something passes in, I've seen my buyers want to retract and pull back the budget that we've set. Yes, and it's not wise because, you know, we could actually have picked it up for a good price in a pass in and then we're out in the market again.

[00:26:48] Then we've had to pay 50 grand more for the next property when we could have actually had a bargain. But the psychology of a pass in is the lack of social proof, which is something that we talk about all the time in this industry. Social proof makes people feel more confident about their decision. And so if you're bidding at auction and you see eight other bidders, you're like, yeah, cool, it's a good property. It's a great property. But if no one else is bidding. What's wrong with it? Exactly. Yeah, and that pass in situation is a hard one when someone downgrades their budget. Sometimes I'll get the crazy text message, I've just stepped in.

[00:27:17] I've said to them, stay close to your phone, I'll keep you updated. I'm going in, you're staying out. And then they're saying, look, we don't want to pay more than 1.3. And I say, yeah, but we went into this new RK with 1.4. Now that it's passed into your 1.3, you only want to pay 1.3. But how do you know that the other buyer won't be there tomorrow or won't read the result in the paper or won't see the new listing on realestate.com and then say, hell yeah, I want to buy this for 1.38.

[00:27:42] It's a really difficult thing to navigate because when a property passes in, it doesn't mean that no one else wants it. It means that the right buyer wasn't there to challenge you for it on the day, but they could be there tomorrow. And sometimes they just don't have their finance sorted. And what I see, and we both see this all the time, is that after a property's passed in, it usually will sell that afternoon. And if it doesn't sell that afternoon, it will go to an open inspection on Monday or Tuesday afternoon and it will sell that night or by Thursday.

[00:28:11] So, it's not a lack of buyers wanting that property. It's just the timing and the way that it came about, particularly when the property goes on the market for a set price rather than a range after auction. And you're like, that's good buying at that price and you need to snap that up before you end up with three or four other buyers pushing it beyond that set price. Yeah, it's great advice. I remember a passing situation in Ascot-Layle and I'll never forget it actually.

[00:28:37] The auctioneer was calling for 20s and I broke it down to 10s. We still went near the reserve. I knew what the reserve would be or had a very good idea. And I was bidding against another fellow. So, at that stage, we were fighting for the right to go inside on a pass in and negotiate exclusively with a vendor. And he wanted to break it down to two and a half. And the auctioneer had had enough of it. Like, I'd got it down from 20s to 10s. We still had a bit of runway until we hit reserve. And he said, no, sir, I'm taking 10s. He's like, no, two and a half.

[00:29:07] I thought, wow, this guy's really firm about his two and a half. Anyway, he argued with him for a few rounds and then said, look, I'm calling it down one more time. I'm not taking two and a half. I'm taking 10s. I'm only taking 10s. At the moment, the bid is with Kate. So, if I don't get an advance of 10 from you, I'm passing in the property to Kate. And he just looked really comfortable and cocky. I thought, I don't think he believes this.

[00:29:34] I think he's got a different idea about how this is likely to pan out. So, the auctioneer called it three times, asked him for his final bid. And he said, nope, I told you it's two and a half. He goes, all right, ladies and gentlemen, I'm passing the property into Kate. This guy scrambled and chased me to the door. And he was at the screen door saying to the agent, no, no, no. You can't reject my bid. It's not legal. Wow. That was a learning. And all I could say to him was, you have to step out of the way. It is legal. We're not on the market.

[00:30:03] And the auctioneer can accept or refuse a bid and can set the increments. And that's what he did. Yeah. Anyway, we bought it. Came home that night. Got the weirdest email at like, I don't know, 10, 30, 11 o'clock at night. He's tracked me down, worked out who I am. You know, obviously just have to Google buyer's agents and try and find the person that you're bidding against. He wanted to buy the property back. Oh. Like buy it off the buyer. So, do a nomination or whatever.

[00:30:29] But he was basically saying there's an incentive there if your buyer is willing to sell this property to him. Wow. So, he really stuffed it up. He really stuffed up. Can I talk about another stuffer? Yes. Which goes, I've got these two more points that we want to cover in auction mistakes. And this really wraps both of them up so nicely. The other mistake is don't go and buy a property for your wife at auction that she's never seen. Oh. Oh, no. It's happened a few times.

[00:30:59] There's this absolutely gorgeous property that was a new build in Gould Street in Frankston. Yeah. And it's a stunning property. Very modern, beautiful. All the, you know, common, all the modern sort of things that's really in vogue right now. And they actually got much higher price than I was anticipating for the property. And I said to the agent, hey, great result. What happened there? And he said, oh, this guy rocked up on the day. Thought he'd buy his wife a present. Bought her this house. I was like, wow, lucky wife. It's a gorgeous home.

[00:31:29] She said, well, the wife doesn't like it. And I said, oh, no. And she said, yeah, it's a really funny story. But he tried to sell it to the underbidder. And the underbidder said, well, yeah, I can't remember exact prices. But let's just pretend it was 3.8 that he bought it for. Her original budget that she was prepared to go up to was 3.6. And she followed him all the way up to 3.8 because she got lost in the emotion of it.

[00:31:57] And this is our second point is getting carried away at auction and going beyond what you had anticipated paying for the property. And she said, well, I will buy it off you, but only at the price that I originally wanted to pay, which was 3.6. She said after I followed him all the way up to 3.8, I regretted it. And I was glad that I actually didn't win the auction because I felt sick to my stomach that I had gone that high when I never intended to. So there's two tips wrapped up into one case study, which is don't go and buy a house for your wife when she hasn't seen it.

[00:32:27] And two, don't get lost in the emotion and get caught up. What a debacle. That's a doozy. Very last one is like bids. Oh, yeah. How many people have you seen the look on the auctioneer's face when someone does it? They just hate you, don't they? It's awful for everybody because the person thinks that they're being cheeky and they're going to get this last minute bid. The auctioneer knows he's got an issue on his hands that he needs to navigate.

[00:32:55] But the auctioneers make sure that they're very, very clear about this. They make sure I was at an auction on the weekend and they actually use the paddle system, which is a farce in Melbourne. It's quite comical because nobody's holding up their paddle, but they force you to have a paddle and assign you a name and they tell you you have to hold up your paddle. Nobody holds up their paddle. And they actually went to the extent of, and this is a psychological play as well, of taking everybody's paddle off them. Is that your last bid?

[00:33:25] Are you absolutely sure? Okay, can I have your paddle, please? And so, it's like a real psychological play of, oh, my God, you're removing the opportunity for me to bid on this house now. And they said, so, we've only got one paddle left. The property is going to be his. Are you sure there are no more bids? And so, they go to great lengths to make sure there's no more bids because it would just be an awful situation. It is an awful situation for an auctioneer to navigate. Or the vendors are sitting in the living room looking out the window going, what? We could have got more money.

[00:33:54] They bid light. Yeah. It's a horrible feeling. I've won against somebody who tried to do a late bid and my stomach, like, dropped for them. I felt bad for them. I obviously was happy for winning the auction. I know when it happens. No, I feel bad because I think, you know, it's just a rookie error and it could have been avoided and they probably will never do it again. But it's a big price to pay. It is indeed.

[00:34:21] Now, the very last little thing that we want to chat about is actually a big thing for a lot of people. It's the fear of proceeding without a finance clause. So, how do we talk to people when, like my buyers last week, you know, they would prefer to have a finance clause so that they've got that certainty. How do we give someone assurance or confidence that they're going to be okay to bid just on their pre-approval? I think there's two aspects to it.

[00:34:48] Firstly, I think it is a case of making sure that you have got enough comparable sales in the area to support the price that you're willing to pay. Because one of the risks is obviously a valuation shortfall. And if you're borrowing 80% and can't get any more funds, then you need to come up with additional money to make up the shortfall. So, I think that's a big risk for people.

[00:35:12] You can cover that by making sure that you understand the comparable sales, making sure you've got enough evidence to support the price that you're going to. So, and I think for me, the other thing that I am interested in, and I always speak to my clients' brokers before we commence the process, because I want to understand their financing. And you and I have both been mortgage brokers in the past. So, we understand how financing works. And we understand what we're looking for to feel secure with our clients' financing.

[00:35:40] And so, what I'm personally looking for is, were there any curlies that are problematic for this applicant? And if, for example, that applicant has some income that most banks won't consider, but one or two will, that's a red flag for me. That's something that I will proceed with absolute caution.

[00:36:04] Because we need to make sure that absolutely can't be a valuation shortfall, but we need to make sure they're absolutely pre-approved properly. And we need to understand the conditions of their pre-approval. If the broker says to me, oh, these guys, you know, they're pre-approved for 1.5, but they could actually borrow 2.5 if they wanted to. I've got 20 lenders that would lend to them. I know with absolute confidence, this is not a risky purchaser. I know that they've got rock-solid situation.

[00:36:33] If they can't get financed through one bank, there's many other banks that they can get financed through. Yeah, they're really valuable. I sit down with clients when they're this nervous about it and I say to them, look, everyone that goes to auction is dealing with the same circumstance that you are. So, there's a social proof element. But also, there are two key things that we need to be mindful of when we look at the conditions on a pre-approval letter. One is that they're paying the right price.

[00:36:58] So, the bank deems their security is being purchased at the right value and the valuer will sort that out. But we need to look at comparable sales like a valuer would. You know, what's recent, what's settled, et cetera. And the other one is that it's an acceptable security to the bank. And it's one thing that I'm really grateful for and I know you are too. We've chatted about it. That experience that we got when we're working as mortgage brokers and you say the variety of stuff that people buy and the properties that the banks reject. And they don't necessarily all have something in common.

[00:37:27] But an acceptable residential security is just that, you know, if it's got fire or flood damage or if it's been gutted or it's not, the build isn't completely finished or if it's, you know, on a major flood zone. You know, there's things that we can tell about the property when we do our DD. Some of those things are red flags and the bank might not like it. That's when you'd want a finance cause. I remember someone purchasing in Yarraville years ago and it was a bargain property but it really needed the most significant renovation ever.

[00:37:55] And the valuer deemed it uninhabitable. Wow. Wow. So, they were prepared for that. Okay. And it went through as land. So, the LVR that they got it for, they were able to make it work. But without being prepared for that, you'd be… Could really undo somebody. Yeah, be a nasty surprise. Yeah. I had a client or a prospect ring me recently wanting to purchase an apartment in a city and for a certain price point.

[00:38:20] And as soon as he told me the area and price point, I could imagine exactly the type of properties that I'm looking at for him. And I'm asking him, you know, what's his strategy? Why is he going down this track? I didn't think it was a sound strategy for what he was looking to achieve long term. I was very honest about that with him. I'd prefer to tell somebody, you know, the realities of it and help them buy the right property than to help them buy something that is going to make me feel sick to the stomach.

[00:38:48] Because I know that it's a problematic strategy in the first instance. And I just said to him, look, I really want you to speak to your bank and send them some addresses, the examples you've shown me. I want you to take them to your bank, your mortgage broker and say, will you finance this? He goes, it shouldn't be a problem. There's no problem. Like I'm pre-approved. Like there should be no problem. And he was not having a bar of it. I've explained why it was problematic. I explained that I don't think he'll get the LVR that he's looking for. It'd probably be 60% at best.

[00:39:16] Anyway, I sent him off to do some homework and he came back. He actually sent me a text message and he goes, well, you know, you talked me out of my idea. I want to do X, Y and Z. Well, consider yourself successful. You've talked me out of it. Now, can I have a conversation with you about what you're thinking? I was like really pleased because he could have ended up in some hot water if he had gone to auction and bought something without really understanding what he was purchasing and how the banks would view that asset.

[00:39:41] Yeah, it's another world and it's one that I'm really proud to have been immersed in because it was a tough apprenticeship when I think back to those four and a half years working with lenders but really valuable. How much do you miss getting all of those applications and documents? I don't. The worst job ever. Actually, no property management, I think, would be probably worse than being a loan broker. For me personally, everybody has their skill set.

[00:40:08] I have so much regard for people that are both mortgage brokers and property managers. I think it's a tough gig. Yeah, and also sales agents too. It's a tough gig. It's an interesting, diverse industry, that's for sure. It is indeed. This has been so cool. Love talking auctions. And yeah, for any listeners out there who are wondering how they can overcome their fear of auction, I think knowledge is power. If you're still intimidated, just outsource it to a strong bidder.

[00:40:35] It doesn't have to be a paid professional but get someone who will respect your limit and execute your bidding to the level that you need them to. Yeah, I agree. Till next time. See you then. Thank you for joining us on today's episode of The Melbourne Property Hour. We hope you've enjoyed the show and we look forward to you joining us next time.