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The Block's auction flop: Five tips for investors

The Block's auction flop: Five tips for investors

This month saw Channel Nine’s hit renovation show, The Block, draw to an end but the shocking auction day results – which left three couples taking home a measly $40,000 between them – left audiences and blockheads stunned.

The truth is, investments don’t always pay off. No matter how much blood, sweat, tears – and apparently media hype – you throw into it. At the end of the day your property is only worth what a buyer is willing to pay for it. Which could be less than you hoped for.

But there are always lessons to learn and certainly a few things investors, and renovators alike, could take away from The Block contestant’s sour experience.

The current auction market

Heading to an auction as a buyer with home loan approval is nerve-wracking. But if you’re the seller, it can be even more daunting — will bidders meet the reserve price and exceed your expectations?

Auctions are a popular selling method across the country, with a number of state capitals posting some impressive numbers recently. In the week ending October 12, the clearance rate in Sydney was 75.8 percent, with 917 auctions held, according to the RP Data Property Market Indicator Summary. This was followed by Melbourne (67.2 percent) and Adelaide (58.7 percent). While Sydney had the highest clearance rate, it was the Victorian capital that took out the top spot for total auctions, with a figure of 1086.

“The inner and middle south-east and eastern suburbs have consistently been the city’s hot spots in terms of the volume of auctions. But strong clearances in the outer metro areas have shown that buyers are increasingly seeking value in the more affordable parts of town,” said Enzo Raimondo, Real Estate Institute of Victoria Chief Executive, in regards to Melbourne auction activity.

Be prepared

If you’re putting your rental property on the market, you need to be prepared. You should present your property in its best light, but you equally need to understand that everything can hinge on bidders’ moods on the day.

“The concentrated pressure of an auction situation can work with you or against you,” said Peter Arnold, RateCity Product Director.

During the finale of The Block, a last-minute bid for Chris and Jenna’s renovated masterpiece sparked a heated bidding war, which ultimately saw them walk away with $310,000 profit. Without this bid as a catalyst, the result could have been quite different.

Check the trends

Are perfectly landscaped lawns all the rage in your property’s area at the moment or are kitchens with mod-cons a big draw card?

Make sure you understand what buyers are looking for in your area. There’s no point adding an expensive swimming pool or a home office if families just want an extra bathroom.

But beware: While an understanding of buyers’ desires is brilliant, embracing short-term interior decorating fads could be a big waste of your money. Just ask The Block contestants!

Watch emotions

Just because you own the property as an investment doesn’t mean others are purchasing it for the same reason. In fact, you might get some eager buyers showing up, desperate to secure that perfect family home.

When people are buying something as significant as a home, emotions can run high. This could cause them to place generous bids. But it could also lead to people being overwhelmed, and failing to bid at all.

“Even if people camp out over night for your auction, they may not put a bid in,” explained Arnold. 

So watch people’s emotions — and understand whether their enthusiasm really translates to an intention to buy. 

Don’t overcapitalise

It’s easy to get carried away with renovating your rental property, but it’s important to keep an eye on your savings account or line of credit.

Spending big bucks on renovations and pouring effort into styling should be done with care. Sometimes, a more practical approach is better than spending up large on pendant lights, marble countertops or spa pools. Plus, most of you don’t have The Block budget to do so.

Always consider what your return on investment will be. If you’re spending more on a renovation project than you’re going to make back, it’s probably not the best move.

Get promoting

Finally, if you want a big turnout at auction day, make sure you promote your property accordingly.

Hiring a real estate agent with experience running marketing campaigns for houses going under the hammer is a smart idea.

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