property

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 market. Even 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.

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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 auction. Don’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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The Myth of the Auctioneer

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If there’s three things Melbournites love of a Saturday, it’s coffee with the papers, watching their team win at the MCG, and the street-theatre of a cracking auction.

And it’s not just Melbournites that love the smell of an auction in the morning: the perennial popularity of ‘reality’ real estate TV such as The Block is testament to Australia’s fascination with property. Whilst The Block is a show more about winning cash than selling real estate, each season I watch The Block finale as I can’t help myself: I’m a Melbournite who loves an auction.

When I began in real estate as novice in my twenties, I aspired to one day have the knowledge and sheer chutzpah to be an auctioneer. Happily, I acquired that skill, and was one of very few female auctioneers in Melbourne at the time. It’s true that calling an auction is not for everyone: some agents don’t fancy being the focus of a crowd, others feel nervous about their capacity to count in varying increments under pressure. I remember my Principal explaining to me that whilst it appeared that anything could happen in an auction situation, the likelihood was that it wouldn’t. Being an auctioneer is tantamount to being the circus Ringleader – what occurs during the process of your call is mostly in your control.  Although I’ve been privy to hundreds of auction calls, I’ve only seen a couple where the crowd have heckled or behaved appallingly. When unpleasant outbursts do occur, the wider crowd will often turn on the heckler – either by making dagger eyes and huffing in their general direction, or by literally telling them to pull their head in. I must admit, I always enjoy it when the ne’er-do-well heckler gets their comeuppance.

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Being an auctioneer is a talent, a skill that not all possess. Auctioneers are the lead actor taking centre stage at the pointy end of our weekend property sport, admired, reviled and mythologised. Here’s the thing: auctioneers don’t have the supernatural money-making powers shows like The Block and many punters believe them to have. A fine auctioneer executes a wonderful piece of performance art paired with the gain of lucre in public: it’s compelling and exciting to witness a great auction that flies past reserve in the blink of an eye. But in real terms, the true influence an auctioneer has over a property’s sale result is low to moderate at best. Here’s why:

Auctioneers are only as good as the sales campaign behind them.

An auctioneer cannot make an over-priced property in an over-supplied market sell, no matter how great their patter or how capable their count. In order for an auction to succeed the listing agent (this is the person with their name on the ‘For Sale’ board) must have run a good campaign. This means they’ve collaborated with their motivated vendor to appropriately price the property, attracting interest from the market – and hopefully, hordes of potentially-willing purchasers on auction day. If the property is overpriced, no amount of mad auctioneering skillz will save the campaign. The groundwork critical to a superb auction result is undertaken by the listing agent – and finished off with razzle-dazzle and control by the auctioneer. Ultimately, selling real estate is all about pricing competitively; the adage of ‘price it low, watch it go’ will always be true (regardless of trends in quoting). If a property is overpriced and there’s no willing bidder in the crowd, the best an auctioneer can do is emergency triage and entertainment before passing that sucker in and privately negotiating ASAP.

A house made entirely of KFC buckets mortared with ‘mashies’ will successfully sell at auction if it’s priced competitively enough: the auctioneer will simply season the deal with their charming seven secret herbs and spices (none of which involve pricing the property or educating the vendor about market realities, all of which is done by the listing agent).

Auctioneers are enabled or stymied by vendor reserves.

On The Block, contestants are delivered reserves stipulated by the true vendor (that being Channel 9). The narrative of The Block positions the contestants as the vendors, though in reality they’re not: they have no control over the reserve set by the station.

In the real world – should an auction be struggling – the agent can take instructions from their vendor mid-call. Depending on market conditions, the vendor may choose to put the property ‘on the market’ and amend their reserve to the last bid – or they might maintain their reserve, opting to pass the property in and negotiate with the highest bidder. The vendor’s instructions directly inform the auctioneer’s ability to successfully sell their property under the hammer. Again, much of the groundwork assisting to make the vendor aware of market feedback on their property is completed by the listing agent – who can hopefully encourage the vendor to set a reserve that’s realistic.

Auctioneers can’t make people buy houses.

When Shelley Craft looks to camera on The Block, remarking that ‘the auctioneer really has to go out there and make us that money’, I feel slightly nauseated. The auctioneer is not the person a successful sale hinges upon: the listing agent and the vendor themselves are. It’s misinforming the public to simplify the matter and pretend that the auctioneer can pull money from clench-fisted buyers who don’t see value in a property. If a property passes in, it’s not because the auctioneer is crap. It’s because the vendor hasn’t met the market (whether they’ve chosen to reject their agent’s advice on reserve, or the agent hasn’t attempted to condition them is the unknown factor).

It’s absolutely true that a talented auctioneer has some influence over an outcome at auction. They serve to entertain and inform the crowd, warming them up and encouraging those interested in bidding to raise their hands. Auctioneers are a walking advertisement for the prestige of the agency they represent, and should be sharply-presented with a dynamic calling style. They are responsible for making the crowd feel safe, and as though all is under control – if you’ve been to an auction where the auctioneer is fearful, the tension and dread is palpable and can serve to scare the crowd to stillness. Auctioneers are a very important part of the real estate sales process in Australia: they’re the Baz Luhrmann sparkle on the everyday gruntwork of a month of open for inspections. Their job is awe-inspiring to many, and the best of them are raconteurs who make our Saturdays sparkle with filthy lucre and witticisms – particularly when bidding is fast and furious. All I’m suggesting is: the auctioneer doesn’t have market power in the palm of their hand. Ultimately, it’s the vendor – and the talent of their listing agent – that decides whether an auction campaign flies or fizzes.

Iolanthe Gabrie a senior property writer, and the Director of Melbourne’s social media agency, Ruby Slipper.

Photographs by Kyle Larson.

Cut-Price Property Management: Dirty Deeds, Done Dirt Cheap

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Urban high streets across Melbourne are populated by what now appear to be our most essential businesses: nail salons, coffee shops, property development display suites and supermarkets.

Between the gel pedicures and the Aesop-filled real estate display suites, there’s another trend that’s emerging more brazenly than ever before: dirt cheap property management. Whether pasted on empty apartment windows, dropped into our letterboxes, bombarding us from billboards or as part of our Facebook feed, it’s not unusual to see property management fees advertised for as little as 3.3%.

If you work in the real estate industry, you’ll probably be disgusted by such a low fee. But if you’re not (and let’s face it, most of the community are not), you won’t intuit much from the advertised fee – you won’t know if it’s high or low, and what value you get for your hard-earned. This deficit in communicating value is a failing of the real estate industry in Australia: they’ve not convincingly told the story of property management, and how it is an expert profession.

As a country, we’ve become intensely price-driven across many industries. Having been drip-fed an insulin-sweet feed of cheap clothes and cheap supermarket shopping, our national lizard consciousness now equates cheapness with value. At the same time, most of us inherently seem to understand that we pay a cost for our cheapness: it’s the obsolescence built into our technology, the fashion tops that look rubbish after three washes, the throw-away culture we’ve engendered. As wages stagnate, the cost of essential services like gas and electricity rise and the median price of housing soars, we look for ways to cut costs in other parts of our lives. It’s an uncomfortable tightwalk we balance upon as our economy shifts.

There are, however, some categories of expertise you don’t want to go cheap on. It’s pretty clear that a bargain basement overseas medical procedure is unlikely to be equal to its more expensive local delivery. Cheapness in professional services is something most of us are wary of, too: we want to know our lawyer, accountant and conveyancer are expert in their field. It’s only the few who are entirely price-driven that pretend all doctors are the same, all lawyers are the same and all accountants are the same – regardless of their level of expertise and accountability.

So why do we not feel similarly about our real estate professionals? Being responsible for the care of our real estate assets is clearly an important role – so why do we think that a cheap property manager will be a good property manager? Aren’t we worried that a business who wins custom courtesy of their cheapness might not be the most legitimate and experienced business? It’s disappointing that the race to the bottom when it comes to real estate fees is often fuelled by real estate businesses themselves.

If you’re an investor attracted by ultra-cheap property management fees, here’s a few reasons to think twice before handing over your precious real estate.

  • If you’re not paying much money, YOU ARE THE MONEY.

A real estate agency’s value is based on the only true asset that business has: this is their rent roll. Whilst the public often think sales is where the money is made, property management is where an agency builds its saleable value. There’s no consistency in sales – having six months of outstanding results is no predictor of the next year being a corker. Sales are just the cream on top of property management earnings.

Cheap property management fees are a sure sign of a Principal wanting to build their asset before selling it on. In short: they’re cutting fees to bulk out their property management asset in an effort to raise its value before flipping it. Their focus isn’t about quality service, supporting their property managers to do a great job for landlords or only managing properties in a geographic area that makes sense: it’s just about numbers.

The result for you as a landlord? Prepare to be sold on to another real estate agency, and soon! You’re a number, not a member.

  • Which way do you want your property management service?

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You can only ever pick two. (I take every opportunity I can to wheel out this clever venn diagram.) Cheapness and speed don’t equal excellence – and when you’re gambling with literally hundreds of thousands of dollars of real estate, do you really want your property managed by an agency who put such little value in their services that they slash their own wages? Probs not.

  • The Golden Ratio

There’s a maximum amount of properties that any single manager should be responsible for. It’s approximately 150. In real terms, that’s a minimum of 300 relationships for a competent single individual to manage between landlords and tenants. Do you know how many properties the cut-rate, beleaguered property manager might be handling? Anywhere from 200 to 300 properties. We’re talking about 600 relationships. You don’t have to be a property expert to know that these figures don’t spell quality management. Far better to trust your asset to an experienced property manager handling an appropriate amount of properties. You want them to know you, remember you, call you and know about your weird air conditioner.

There are a bevvy of reasons not to go cheap on yourself when it comes to important services like property management – but these three spine-chillers should do for now. 3.3% management fees? No thanks!

Iolanthe Gabrie is Director of social media agency Ruby Slipper. 

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 treated, acknowledged 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.