Key Auction Tips - Part 3 The Psychology of Auctions

Observing and understanding the often subconscious, psychological factors that influence bidding is part of my business. It helps me to get the best deals at auctions for my clients. The psychology of auctions is absolutely fascinating and it's something that all bidders should be aware of before auction day. Why? I hear you ask. It's because auctions are highly emotional environments where a bidder's focus, reason and common sense can easily be lost momentarily costing them thousands.

Just think about it. You have a group of people all wanting the same thing and in order to get it, they need to outbid and/or outsmart each other. Auctions are very much about competition and being a winner whilst trying to spend as little as possible. Two things that are in conflict with each other.

You also have the big pressure cooker - `money'. Money brings up a lot of emotion for most of us. Even talking about money makes most people uncomfortable. For instance, it's considered rude to ask people how much money they earn, or how much they're worth - even if they're close friends. If you're going to declare how much you're worth in public, you'd prefer to be worth more than everyone else. No one wants to be shown up as a loser and poor as well.

In addition, most of the bidders will already have put some money into the deal. They've paid for the pest and building inspections, paid for a solicitor to review the contract and have their deposit ready to go. So they also have something at stake and the last thing they want to do is to see any of their money go down the drain.

Many of the bidder's will also have developed an emotional attachment to the property even though it doesn't yet belong to them. For example, they'll imagine how to arrange their furniture, when to organise the new tiles for the bathroom and how happy the children will be in their new backyard. In their mind it's just a matter of time before the front door keys are handed to them.

To top it all off add in some peer pressure and you can start to see how quickly emotions can get out of control! When several people are in this state it can lead to a bidding frenzy. They occur when buyers let their hearts (or egos) rule their heads - everyone wants to be a winner when the hammer falls. It's not uncommon for such frenzies to drive the highest bids above market values. This is what all vendors and selling agents want.

To understand this better I highly recommend that you attend a dozen auctions as a spectator to get some idea of how you will react in this situation. Watch people's reactions before, during and after the auction and feel the energy in the room. After your experience then ask yourself these questions:

• Will I be able to keep a clear head when it's my money on the line?
• Will I be able to stick to my limit and not bid even a dollar over my maximum price?
• Will I be intimidated by the other bidders?
• Can I project confidence and play my cards close to my chest on auction day?

Of course, you say, it would be obvious of me to suggest that you hire a professional to do the bidding for you. However after seeing the actions of hundreds of inexperienced bidders at auctions over the years, it would be negligent of me not to advise you to explore this option. If there is even the slightest risk that you could get carried away or lose focus then you need to hire a professional to bid on your behalf. It will literally save you thousands.

Next week, in this series of articles, I'll discuss some of the selling agent's tricks of the trade when it comes to auctions!

Take a look at my best seller The Insider's Guide to Saving Thousands at Auction for everything you need to know about auctions.

Related blogs: Key Auction Tips series:

• Part 1 - Understanding the auction process
• Part 2 - Organise Your Finances and Research the Market
• Part 3 - The Psychology of Auctions
• Part 4 - Selling Agents' Tricks of the Trade
• Part 5 - How to Prepare Your Auction Strategy

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