It was to be expected, but it's still terrifying: Our very first property auction as potential buyers ended up selling for more than a hundred thousand dollars (!) than our top limit. Bearing in mind that we were looking at property that was quoted well within our range, the result can only be interpreted as an argument in favor of us extending our current house instead of moving. Or, to put it in the words of the real estate agent himself, "that was crazy".
The event gives me an opportunity to discuss the institute that is the property auction. The real estate agents sell it to you as "the most democratic way for selling a house", but in my book that's not too far from saying Hitler was only worried about potential overpopulation issues. For a start, there is nothing preventing a seller from taking their time to consider multiple private sale proposals; it's just as democratic, and it allows the buyer to offer their own terms & conditions rather than blindly accept those set by the seller. And in our particular case, the seller was indeed on the evil side of things, quoting for stratospheric compensations in case anything goes wrong.
So yes, an auction is very democratic if you're the seller. To the buyers it's dictatorship par excellence.
Given that we're all living in a real world where property auctions cannot be avoided, the question becomes - how do we best tackle an auction?
Even though I'm a beginner when it comes to perperty auctions, I can confidently say I'm very well versed in the psychology of bidding through my substantial eBay experience. There are several tactics I tend to use on eBay, but the basic one is this: I determine how much I'm willing to pay for an item and I don't bid on it until the very last minute because I want to avoid the emotional bidders from doing their best to outbid me. If my top limit is surpassed before the auction ends then so be it.
Thing is, property auctions are different to eBay in that they have no predetermined ending time. The real estate agent will pull them as long as it takes if they were to suspect another bid can come. The real estate agents will also do their best to stir up emotions in order to get the emotional bidders into bidding more than they should; they even have estate agents roaming the bidders to try and elicit them for more. My eBay strategy would therefore not work.
What can the rational bidder do, then? I would say the best option, overall, would be to (a) wait until the very last second before putting a bid and (b) add the lowest incremental on top of the current bid (that is, if the agent is expecting $10,000 over the previous bid, offer $5000). This way you'll be doing yourself the least damage and you're creating a potential war of attrition that might just help you get rid of the "emotionals". On the other hand, it might just lead them to believe that by just adding a thousand more they may get the house, so it cannot be said that my strategy is an all out winner.
My brother, the Israeli in our family (in the classic sense of the term, which means someone who will never allow themselves to be anyone's sucker), proposed an alternative: Do the same as I have suggested, but bring in a fellow bidder to bid with/against you. Others will think they're facing mightier opposition than they really do, thus helping you get rid of more "emotionals".
So we took my brother along and we followed the plan to the letter. We could also note others applying the very same tactic, too; there goes originality.
But we still lost, and lost miserably, leading me to the following cocnlusion: if you want to win a property auction, all you need to do is have more money than everyone else.