A behind the scenes look at an auction: what you need to know to win

Sydney’s Eastern Suburbs, Inner West and Lower North Shore are very auction oriented areas and there are certain rules of the game that you need to bear in mind when buying in such markets.

Firstly, you need to be aware of how a quoted price or price range comes about. Basically, it is the lowest price that the agent thinks he or she can get away with quoting. And what they can get away with depends on a number of factors, not the least being their legal obligations and requirements imposed by the Office of Fair Trading.

Now, before an agent lists a property, they usually conduct an appraisal and pitch their proposal against other selling agents. There is an obvious temptation to put a high estimated sales price if they think that will increase their chances of winning the listing. Many otherwise level-headed property owners can get blinded by a little price flattery. So in order to make these estimates more realistic, the agents are required to provide evidence of how they have arrived at their suggested sale price. What usually happens is that they end up providing a range. What they really believe is at the lower end and what they think the vendor wants is at the upper end. This is the range that is written on the agency agreement and they are not allowed to quote a lesser figure.

However, the vendor probably won’t sell at the lower end of that range without some heavy persuasion and they would need to be convinced that nobody would be prepared to pay any more. Thus begins the conditioning process, whereby the agent seeks to close the gap between what they think the property is worth and what the vendor wants for it.

Now sometimes the vendor is right and buyers are prepared to pay more than the agent thinks. During an auction campaign, it is not uncommon to receive pre-auction offers. In most auction campaigns there is not much point putting in an offer under the quoted price, so you would expect a serious attempt to buy prior to auction would take the form of a greater figure. Every time the vendor rejects an offer, the agent is required to increase their quoting. And if there is only one buyer at that higher level, that can really sabotage their campaign.

When it is a sellers’ market, it seems that every property can generate buyer competition. In the inner suburbs of Sydney we know that good property still attracts strong interest from buyers, even in a flat property market. However, regardless of market conditions, the quoted price range is an essential component required to generate competition. If the agent is allowed to continue quoting a low starting price, they improve their chances of being able to build substantial interest and have a competitive auction. However, if they are forced to increase their quoting, their job is made all the more difficult.

At the top of the market we see buyers beginning to exercise caution and show a reluctance to compete if they think somebody else is already prepared to pay top dollar or if the vendor has unrealistic price expectations. And we have been at many auctions where there has been good interest in a property yet high vendor expectations have ended up causing a sluggish auction.

The bottom line here is to be aware of the quoted price and what impact that can have on the ultimate sale price. A low price guide can build substantial competition while a more realistic one can limit competition. So don’t assume all agents are low-balling, there are some good buying opportunities with reasonably quoted properties. But if the home you have fallen in love with is being quoted low, try making an offer that will force the agent to increase the quoting. You may surprise yourself and end up buying it prior to auction!

 

Further reading 

http://gooddeeds.com.au/buyers-agents-sydney/sydney-property-market-updates/same-same-but-different-will-the-new-auction-quoting-laws-change-anything-in-nsw/

http://gooddeeds.com.au/buyers-agents-sydney/sydney-property-market-updates/5-people-likely-bid-big-auction/

http://gooddeeds.com.au/buyers-agents-sydney/sydney-property-market-updates/bidding-auction-best-somebody-else-bid-behalf/

Published:- 28th June 2016

DISCLAIMER:

Please note: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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