Key Auction Tips - Part 2 Organise Your Finances and Research the Market

If want to buy well at auction then ask yourself this important question. How do you work out the value of a property up for auction so that you know where to set your bidding limit? The answer is `research, research, research'. There are no shortcuts here, research is the key to knowing the true value of any property and is absolutely essential in order to make sure that you purchase a good property for a fair price.

Before you start your research however, you need to sort out your loan first so that you know your budget. Why put all the work into finding yourself a fantastic property only to find out that it's beyond your means. I recommend a 20 percent deposit to save yourself mortgage insurance and to give yourself peace of mind if interest rates rise or you lose your job as you will have a buffer to redraw against. If you don't have enough then consider saving a little longer or look for a more affordable property or location.

Next, you need to work out what you want. Don't waste time searching all over the place in the hope that you might stumble upon something that you like. To save yourself a lot of time and frustration, ask yourself a series of questions to focus your search, such as:

• Am I after an investment or a home to live in?
• What are my top 3 suburbs?
• Do I want a house, a terrace or an apartment?
• Do I require parking or it's not important?
• How many bedrooms do I need?
• Is a view, a pool or a garden important to me?

   

After you've organised your loan and developed your property `wish list' then it's time to research the market before you start putting in offers. The process is called comparative market analysis and it's extremely powerful when you're trying to negotiate the best possible price as you have research and facts to back up and support your offer. In your top 3 suburbs I recommend that you examine at least 100 properties in preferably an 8-12 week time frame which is only around 10 properties a week. You need to do it in this timeframe as 2-3 months is a long time in real estate and prices can move quite substantially.

Make a note of the basic features and condition of each property plus the asking price or agent's suggested price. You could even cut out the ads and stick them into a scrapbook to make it easier to track. You should also follow up with the selling agents to find out how much the properties actually sold for.

After you've inspected 100 properties you'll have gathered a lot of local knowledge that will help you value properties in your chosen area. For example, small differences in location can create significant differences in price. Most suburbs have several roads where the price for a very similar home can differ from one end of the street to the other by as much as 10% or even 20%.

To supplement your own research you can buy property sales data reports that list sale prices in a suburb or postcode over a given period (usually the last 12 months).

Just be careful how you interpret these reports to make sure you are comparing the prices of similar properties, with similar land size or floor space. Internal condition, number of bedrooms, bathrooms, and views also play a significant roll in determining a property's value. So in short the reports are useful as a rough guide however don't rely on them on their own to value a property. Unless you have inspected a property from the inside you could easily be out by 20% or more.

Quality research (that's physical inspection research) will ensure that you don't pay more than a property is worth. It will also give you the experience to be able to spot a bargain at auction. If you're serious about getting a good deal and saving yourself thousands if not tens of thousands of dollars then you will be prepared to invest the time.

Next week, in this series of articles, I'll focus on the psychology of 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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