How to Win at Auction Without Being a Tool

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Last weekend I attended an auction in my neighbourhood. I was just sticky-beaking and enjoying the Saturday morning theatre. I arrived early and had a peek around the property after being greeted by a cavalcade of junior agents with iPads (don’t be mean to them … we were all young once and wore shiny polyester suits and sunnies on our head inappropriately until we knew better).

At auctions, you can almost always tell the serious, interested buyers from those who – like myself – are attending for sport. They tend to fall into two categories:

Serious bidders at auction be like:

The ‘Been there, done that’ bidder: older purchasers who are standing at some distance from the auctioneer. They arrive five minutes before the auction, and don’t attend the open. They’re cool ‘coz they’ve purchased property before (and they’re probably superannuants with loads of equity). Bless their cotton socks (and their Uniqlo vests over cashmere paired with chill AF oversized sunglasses).

The ‘I should have done a nervous poop at home before oh God why didn’t I do a nervous poop why does this always happen to me’ bidder: they’re newbie first home buyers (although they might not be spring chickens, given the state of the Australian economy). These guys arrive ten minutes before the open for inspection begins, spend quite a while inside the property and then stand around right in front of the home waiting for the auctioneer to emerge. They’ll often be on obviously chatty terms with the agents, and have brought a horde of supporters with them.

At Saturday’s auction, both of these bidder types were present. Both bidders probably had the wherewithal to purchase the property, but it was the ‘been there, done that’ buyer who nabbed it in the end. And their strategy? It was to participate and not be a tool.

The ‘been there, done that’ couple waited until the auctioneer made a vendor bid, and then made a fair offer that was within quote range (although at the lower end). There wasn’t a huge amount of interest in the property, and they patiently waited for another bid to be made. The ‘I should have done a nervous poop’ buyer was obviously chomping at the bit to make a bid. He was a fella in his late 30s, rocking to-and-fro on his toes and trying to stare the auctioneer down. The auctioneer (who clearly knew this purchaser had an interest in the home) continually referred to this purchaser, giving him an opportunity to bid.

At this point the property wasn’t even on the marketEven if he did bid, he still wouldn’t have purchased the property as it had not made reserve. The ‘I shoulda done a nervous poop’ buyer was occasionally conferring with his partner and parents while the crowd waited to see if he would bid. He went on to ask questions of the auctioneer, before eventually saying he would make a bid of $1000. As I said, the property wasn’t yet even on the market, and the newbie buyer’s strategy was seriously impaired: if you want to have first right of refusal to access to reserve and negotiate with the vendor, you need to be the last bidder. You need to have the property passed in to you.

Of course, his $1000 bid was rejected (they were calling in $10,000 brackets), and the happy-to-participate ‘been there done that’ buyer went inside and purchased the home. The difference between the more experienced bidder and the newbie bidder comes down to this: a willingness to participate and an understanding that tricky strategy at auction is a load of hogswash. You got the money or you don’t. You participate or you don’t.

I bet the newbie buyer was spewing that they didn’t purchase the home they had so clearly invested in emotionally. From stalking nervously outside the front of the home to in-depth conversations with the agents and bringing a horde of supports along for the ride: they wanted to buy the property. But they got too caught up in micro-strategy and trying to be smart, excluding them from negotiating with the vendor.

Bidding

Here are my top tips for winning at auction (without being a tool).

1. Have finance pre-approval in place. Don’t even begin looking for property until you’ve got a hard budget to work with. It will only lead to heartache! Bidding at auction without pre-approval is something you should never do, as when you purchase at auction there is no cooling off. (Pro-tip: use a broker, not a bank.)

2. Take action (within your budget). If you’ve found a property you’d like to buy, participate in the auctionDon’t be like our poor mates who psyched themselves out with gameplaying and froze. Raise that hand and bid.

3. Don’t get too smart about bids. Putting forward a $1000 bid early on in the auction – before it has even reached reserve – is a tool move. By all means once the property is on the market, break down those bids as you see fit, but do so with purpose.

4. If a property is going to pass in, make sure it passes in to you. You’re not obligated to purchase at the vendor’s reserve – but you’ve won the opportunity to negotiate and know the reserve. If you don’t have the property pass in to you, you may have it stolen out from under your enthusiastic tootsies, which would suck.

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Gratitude and the Estate Agent

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I love coffee cards. I only drink decaf, but that doesn’t stop me from punching my way through a coffee card in the space of a fortnight, before being rewarded for my good custom by my local provedore of (de)caffeinated beverages with a freebie.

I feel treatedacknowledged and delighted by this gesture. In all, I’ve probably spent about $35.00 with a coffee shop over the space of a couple of weeks, who then reward me with a coffee worth 10% of the value of my investment in their business. That’s just good business – and increasingly, we expect our loyalty to be rewarded – even with the most basic of purchases.

Can you imagine if an estate agency spent 10% of the value of a vendor’s investment on treating their vendor and buyer? It’s likely you can’t.

And that’s because the real estate industry has a problem with saying thankyou.

The bad old days of cleanskin wines and Donna Hay cookbooks are gone. The real estate industry is being forced to give more than ever before, whilst ostensibly working for the same (or a reduced) commission. Frankly, I don’t know how they’ve gotten away with displaying insubstantial gratitude to the people who pay their bills for so long. Are you a real estate stalwart grumbling with disagreement? You’re likely part of the problem.

Free-market economics are improving standards across the real estate community, with savvy agents looking to innovate across the entirety of their businesses. Creating an edge is where it’s at, and that point of difference simply can’t be achieved with the lacklustre delivery of shiny, branded Christmas cards with a printed ‘signature’, templated dross-filled newsletters focused on your business rather than your community, or a cheese knife and woodblock set handed across the front desk by a harried Sales Secretary at settlement time.

So what’s the edge? And how can you get it?

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The edge is called delight. Delight is the emotional state that creates goodwill between parties. Goodwill brings with it referrals, repeat business and cold business – all drawn magnetically to you as a sales agent or a company because of your reputation. Delight costs, of course. It costs in personalised, thoughtful gifting. In genuinely giving back to your community in terms of quality messaging on bespoke social media. It costs in time, as well – in lounge-room sitting or calling that landlord client to check-in on how his experience with your property manager is faring. Delight is the only currency that matters in an age when fewer agents are doing more business thanks to ‘marketing units’, more powerful databases and the collapse of smaller agencies into monied mega-brands.

So let’s get grateful. To both our vendors and our buyers – who have both paid a healthy portion of your monthly bill courtesy of their invoice. It’s easy to become numb to 5-figure commission checks when you’re within industry, splitting them up into their 40 – 60% splits before they’ve even hit the trust account. But each commission is big bucks to your vendor, and it needs to be appropriately acknowledged.

Word to the wise (and not the wise-assed): this isn’t an opportunity for Principals to pass the buck on gifting. This gesture of gratitude must be a percentage that comes off the whole fee. Not just the amount of commission apportioned to the sales agent – that’s lazy, and greedy. Imagine the sense of delight you could offer your vendors and buyers by setting aside just $3000 of a $30,000 fee and investing in gratitude. BBQs and dinner-tables around your community will soon be buzzing with talk of your decidedly un-realestate-y generosity. This delight could be a big spend all at once, a fair splitting of the resources between the vendor and the buyer. It could be a portioned upfront spend on the two parties, with an additional amount put into a collective ‘delight’ kitty, used for the benevolent scattering of goodwill to deserving clients in the form of coffee cards for newbies to the neighbourhood, magazine subscriptions, tickets to the theatre or weekends away.

The edge is delight, surprise and gratitude. It’s time to give back and to say thankyou. And it feels good.

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Photography: Breeana Dunbar

Location: Aquabelle Apartments, Mornington Peninsula

Iolanthe Gabrie is the Director of Ruby Slipper, Melbourne’s best social media agency. Learn more here.

 

Cooked Their Own Goose: Vendor Greed

Buyers are saying no. And with good reason, too. Vendor greed has killed the goose that laid the golden egg.

The property cycle is the same every time. Interest rates go down (or go up, as a warning shot over the parapets) and hopeful property buyers spring into action. They begin buying property under competitive conditions, and prices crawl upwards. Some neighbourhoods surge ahead in value – shocking their communities with a steady increase in property prices. Cue media outlets and newspapers opining on Melbourne’s property market balloon, resulting in Saturday night news featurettes on extraordinary auction results and the impossibility of first home buyers securing property. Some vendors make well above their reserves, elated and excited at their windfall.

Buyers keep buying property despite all this ‘balloon market’ talk, choosing to invest their dollars in property, confident that property prices aren’t going down anytime soon in desirable, urban areas as our population keeps growing. Clearance rates are high, and vendor’s appetites to sell are whetted. That’s where it all starts to go wrong.

It doesn’t go bad because of a balloon or buyers ceasing to see the value of property investment. It goes bad because of vendor greed. Vendors Gone Wild, if you will. The vendors just a few weeks earlier in the same property cycle were setting reasonable market reserves which left room for buyers to compete. It’s only when a vendor is listening to their agent’s feedback about quote range (or advice on why they shouldn’t display price) and setting a reserve buyers see as reasonable that competition occurs, properties sell, clearance rates remain high and prices increase naturally and incrementally. The vendors who weren’t greedy – weren’t trying to abuse the market’s confidence in property investment – were those prepared to sell at a fair price.

It’s the vendors who have more recently come onto the market – those who believe the media news that prices are outta sight and going north – that have cooked the market’s goose. They always appear in the property market cycle at its greediest  pinnacle. (Although they’re by no means the only kind of vendors attempting to sell their properties before Christmas.) These vendors don’t amend their expectations of price despite agent education and market feedback because they were never sellers in the first place. They’d sell for an extraordinary result, but their motivation to meet the market is low. The result of an out of control vendor are high pass-in rates, lower attendance at open for inspections and a general unwillingness to participate from buyers.

Buyers be like #HellNo and #OhNoYouDiint

This is as it should be: it’s a sign that the market is discerning and aware. Buyers are willing to bid to buy, but they won’t tolerate greed and an inability to compete openly.

If you’re a vendor who has not sold and you’re part of the current property cycle, ask yourself the hard question: are you really selling or are you just trying to fool the market into paying more than your property’s worth? Listen to your agent’s feedback and take action by meeting the market. If you are selling to buy, be logical about pricing and don’t get hung up on achieving a figure based on nothing but hope. Waiting for your ‘perfect price’ could mean watching the market cycle for several years. In that time, the property you’re hoping to buy will also go up in value  – and will be just as unaffordable as it is today. It’s critical (in most cases) to buy and sell in the same market, when values are balanced. Waiting won’t change the inherent value of properties if you’re selling to buy. Word to the wise? Don’t cook your own goose!

After all, if Tay-Tay and Yeezy can hug it out, so can buyers and vendors.