Location Location Location Australia

How to Play the Auction Game

 

VERONICA'S BLOG - EPISODE 6


Go behind the scenes of Ep 6 of Location Location Location Australia with these top tips from host, Veronica Morgan.

 

 

Buying Before Christmas

 

I have been in real estate now for 12 years and in all but one of those years there was a drop in prices in the spring/ pre Xmas market. I think in 8 of those years the market bounced back very strong after the Xmas break.

Why? Well the roots of this phenomena stem back to winter when there is usually a shortage of stock. Owners rarely want to sell in winter and seem to think that buyers only come out in spring. Now buyers, on the other hand, aren't that seasonal. They look when they want to buy. But they often get disheartened through a winter property search. There is never a lot on the market, so it can get competitive for them once they find a property they like. By the time spring comes, they often have no energy left. Then an influx of new property suddenly hits the market in late September and October and their sense of urgency evaporates as they feel like they now have choice. If they don't get this property, it's ok, they'll get that one...

 

First Home Buyer Tactics and Traps for Young Players

 

Matt and Raquel had a very interesting approach to trying to get a competitive edge in their property negotiations. While I could see the logic in their tactic, I could also see the danger. You see, they put in an offer on a property and wanted to make that offer look really good. So they got a couple of friends to put in lower offers. Makes sense, doesn't it? Only thing is that they did this in the first week of an auction campaign and instead of managing the vendor's expectations, they gave the impression that there was loads of interest in the property. Both the vendor and the agent started getting very excited about the prospect of a competitive auction! So I came in after the horse had bolted, so to speak, and had to start the expectation management process.

 

Why you don't make an Offer until Ready to Exchange Contracts

 

Here is another case of a newly built home that was advertised for auction without a complete contract of sale. There are so many documents that need to be signed off, not the starting with the home owners warranty certificate, occupation certificate and in this case, registration of the subdivision. None of this had been done, so effectively the property should not have been offered for sale. Even if Raquel and Matt were ready to make an offer, they didn't have a contract.

 

Vendor Bids

 

It never ceases to amaze me that agents use a vendors bid at auction without any thought about strategy. At the auction for this Earlwood house there was one other registered bidder who did not choose to make an opening bid, so I opened at $830,000, which is $7000 under the offer Matt & Raquel had made on the property before enlisting our help. The other buyer did not respond, so the agent confered with the owner and decided to exercise a vendors bid at $890,000.

Now this is really a ridiculous tactic. In my book it is always better for a real buyer to hold the highest bid, not the vendor. And because neither the other registered bidder nor myself put in another bid, the agent had no idea whether we would have paid more than our opening bid, nor how much we might have been prepared to pay. Instead they simply squashed any chance of further bidding.

After the auction we prepared to negotiate and the agent informed us that the vendor would not accept anything under the vendor bid. So we left the property after advising the agent that we were prepared to negotiate, but nowhere near that price. So the agent made the mistake of holding an auction, getting a willing buyer, yet letting them walk away without establishing their maximum offer. Foolish.

From our point of view, there is no point negotiating when you know a deal will not be struck. Much better to keep your maximum price to yourself. There have been plenty of times in the past where we have picked up a property in the weeks after an auction for less than we would have paid on the day if the owners had been prepared to negotiate.

If you would like to read more of Veronica's insights on the property market, particularly in her own backyard of inner Sydney, go to Veronica Morgan’s blog.

 
 

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