Another relatively unexplored concept is quantum.
If one tries to participate in an auction that almost every other person finds the reserved price easy to bid with / without any bank financing. Then the over-bid price of the Winner's Curse (WC) is going to be very demanding, whether it is in the boom or bane period.
But, if the reserved price is high for most common bidders, then even in a boom period, the number of bidders will remain very small. From market observations, the quantum of 200k and above remains a good guide.
So if these properties are gotten during these boom periods, the harm if any is going to be minimized.
Auctioneer's trickery
It is not unusual for auctioneer / bank / valuer to collude and set a relatively high reserved price for the property during boom periods. Bidders are advised to double-check the historical price charts before bidding.
Summary of the technique
- Residential properties only. There are occasions where even the commercial / industrial properties are relatively cheap. Don't go there. There are always things that we are not aware of. Agricultural properties have a special application in my heart. Read it in another blog entry.
- Commercial application - The bid residential property must have a commercial application to be viable long term.
- Reserved price quantum should be higher than average folks' affordability, i.e., above 200k, 1m if possible.
- Historical price charting and checking is a must.
- Bid only in a less-than-3-bidders auction and bid no more than 10% above the reserved price. It is quite usual that the winning bid in a 3-bidders-or-less auction to be less than 10% of the original reserved price. OR always bid no more than 10% above the reserved price even if it is not likely to be successful.
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