What are you going to do this weekend on a pass in or a vendor's bid?
In 2009 the rules & strategies have changed. Don't miss out, don't pay too much.
Many buyers turn up to an auction with little planning having been done, other than "I think I will bid up to …" or plan B "I will see what others do".
If you want to spend all your money in this market that, as a general rule, has shifted downwards between 5 and 20% in the past few months (inner Melbourne higher-end properties), then this planning - or lack of it - will achieve that (spending all your money).
2007 was to some extent easy - you turned up, put your hand up and, at the end of the auction, you had either bought the property or you hadn't. Much of our work as buyer agents was buying before auctions, stringing together bidding strategies, assessing value or negotiating off-market properties.
In 2009, the rules have changed for buyers. In 2009, if you turn up and put your hand up, quite often you are the only person to do so. Look at the results below of the million-plus dollar properties passed in at auctions; more than half had the auctioneer issuing vendor bids at the pass-in price.
So what happens next after you have put your hand up and it's passed into you?
Usually, you are fawned over by a number of surprised agents (who are surprised because they thought there were going to be five bidders but, for some reason, nobody else showed up). You are taken inside and immediately told just how lucky you are and the reserve is only "x" dollars above the quoted range and this is your lucky day.
Can we rewind a bit before we discuss what are your options from here............Roll back
Once you have found your dream home and it is going to auction on this (or a later weekend), there are a few things you should do before auction day.
- Get an architect or builder to assess the home's current condition. A pest inspection in many cases is also money well spent.
- Documentation needs to be checked by a solicitor - not a conveyancer, but a solicitor who can give you a legal opinion on its validity.
- Get some professional help - and we don't mean the help that involves somebody giving you medication. We mean a professional buyer advocate, experienced in the type and price of property you are looking at. A buyer advocate experienced in the ways of the other side (granted good selling agents also know a thing or two about managing buyer advocates - so make sure it's an experienced advocate at the price levels and property types you are looking at). Of course we are going to say get a buyer advocate - but we can show you numerous examples where we have had a lot of money left in our pocket (or should I say your money stayed in your pocket) when acting on behalf of clients who freely admit they would have planted it down on the table if asked. This is not a slight on selling agents - to the contrary, this only confirms why 99 per cent of all sellers hire selling agents because they do work, they do make a difference and, in this market, good selling agents make a difference more than ever. For some reason, many buyers are embarrassed or feel it's an assault on their manhood or feel they can, on their first or second go at auctions, match it with the best in the business (high-end selling agents) and therefore they don't hire a professional buyer advocate.
- Get a FIRM idea on different value ranges - in today's market, last year's data is a guide but not a bible. The market has shifted and next week it may shift again - we are in volatile times, so you need different price guides for different situations. ON THE SAME PROPERTY.
- Get a plan - flowchart scenarios, prepare scripts on what to say when under pressure.
- Practise your breathing, your scripts. We know some clients laugh when they read this bit. It's true. If you cannot go to Harvey Norman today and HAGGLE $150 off the asking price of a computer, or you cannot get up in front of 20 office colleagues and give an off-the-cuff talk on why your dream home is in fact not your dream home, then are you sure you are the right man (or woman) for the job this weekend against experienced buyers and quality selling agents? Alternatively, have you the skills to take advantage of poor selling agent preparation?
OK, so now to auction day
- Does the auction feel alive or not?
- Should I open the bidding or not? The advantage to opening the bidding is you can make it lower than a vendor bid and, if you are smart, that may stop the vendor bidding. The disadvantage is it gives your buying opponents, Nervous Nellie or Nervous Neil, a confidence boost that somebody else likes this and then they start bidding.
- You've bid $1.83 million. The vendor bid is $2.1 million. OH MY GOD. What do I do now????
Roll forward: it's passed into you and you are sitting in the lounge room of your dreams and your final bid was $1.125 million and the agent has said you can buy it for $1.35 million. What do you do?
Thoughts that run through our mind:
- The quote
- The agent and his or her experience (What have been their recent successes? Or not successes?)
- Was there any other bidding?
- Has the vendor bought (research beforehand)
Some of the tactics and techniques an agent may use on you - do you know what to do?
- The squeeze
- Silence
- Walk away
- Double tag - one responding and one listening
- Higher authority
- You instead of us
- Multiple offers
- Over the top - new player
- The trial agreement - if I can get my guy to
- The deadline
- Build the pace
- Slow the pace
- The alternative (competition)
- The no response
- Show me the money
- The fait accompli
- Grinding
- Timing
- Bridge building
- Laugh and pause
- The withdrawal
- The 1,2,3 drop
- The dribble, dribble, solid amount - last gasp
If we haven't at least made you think about your auction this weekend, then apologies, but if we have, then let's meet and have a chat - no obligation and you assess if we can add some value.
After all, GREAT NEGOTIATING is not about missing out - anybody can do that. GREAT NEGOTIATING is not about paying over the odds by a long way and spending all your money and then some - anybody can do that. GREAT NEGOTIATING is about getting what you want at a price you are happy with.
Why should a SELLER have all the odds in their favour - the market has shifted direction - HAVE YOU?
30 March 2008
Dear Mal, Peter, Melissa and Adam,
Re ............ Avenue Balwyn,
We would like to take this opportunity to thank you very much for securing our future home.
When one of our colleagues pulled out at the last moment in assisting us for the purchase of ......... Ave Balwyn, we thought we would need some help in making one of the most important decisions (financially) in our lifetime.
We were both extremely impressed given the short time frame you and Peter had to work with ie less than 48 hours before auction.
Your professionalism in putting together a substantial report on the property and the follow-up strategy at auction and post-auction negotiations, we believe gave us the edge in securing the property.
We were glad that you were bidding for us at that auction, as you took control of the proceedings immediately and certainly made it clear to other bidders that they had a real fight on their hands if they were to be successful.
We cannot talk highly enough of your overall approach and in particular your post-auction skills in negotiating a great price for us. We firmly believe that you have added value in the process of purchasing our home and would not hesitate to recommend you to any friends or family.
Well done to your team.
Yours sincerely,
Ezio and Sonia
Case Study
Not All Dummies Are Dummies
Our bid at auction was $1,200,000. Vendor bidding reached $1,300,000 and the property was passed in. Fast-forward to post sale negotiations. Hocking Stuart Auctioneer Peter Kennett was breathing fire, brimstone and colorful language. This was the big time - our clients "grand final" if you like, and we had to make a call. Was the other bidder for real or was he a dummy bidder?
We had warned our client about this scenario, but in the heat of battle explaining on the phone that we believe the other "bidder" is real is not the easiest part of our job. The $1,300,000 buy price was within our Property Report recommendations and it was the right place for our client. We have a good working relationship with Peter Kennett. He has been straight with us before, and so we bought it.
You will never know for sure how real the other bidder is - but in this instance, by an incredible coincidence, we ran into the under-bidder the following week. He had all the property guides in his possession in a Middle Park coffee shop and we had a chat about the sale. He was real. So were we. And we think we made the right call under pressure.
How agents work in Melbourne
Selling agents are working for the vendor - that's what the vendor wants and that is what the law in Victoria says. We repeat - selling agents do and cannot work for you, the buyer. They are paid for by the vendor.
There are different types of agents - for example, the door agent, the controller, the director agent etc. They are all paid differently and it varies from agency to agency. Ever wondered why an agent does not seem to be interested in you or your money? In some cases, he won't earn anything from you buying. In fact, he will go out of his way to see you don't buy it. It happens!
Understand what makes agents tick, and you will buy smarter, whether at auction or private sale.
The three things that makes agents tick are:
- Maximising the price you pay
- Getting their next job
- Making their commission
Commission is the strongest factor, and until you have worked within the industry, it's hard to describe how focused some agents can be on commission.
There are four main commission systems and we discuss these on our DVD How Agents Work. Click here to be sent a copy.
Many agents operate under a "combat system"
Many agents compete or "combat" each other for commissions.
Focused agents thrive, mediocre agents keep their jobs, and the low-earning agents starve or get fired.
Inexperienced buyers can be put under incredible pressure if they get caught up in bidding wars among agents. Even experienced buyers can be naïve. That's where we can share our knowledge and expertise.
The other commission systems have different issues but offer no real advantages for buyers in terms of price and bias against the buyer.
At auctions or in a bidding battle, when you need to make quick decisions, you can do dumb things if you are emotional. The agent on the other end knows how to press your buttons, how to read your body language and how to get an answer from you without you even knowing you have been asked a question.
How can you possibly protect your interests against agents?
"I really want this and I will pay whatever it takes" is not a great line if you are into price reduction.
On the other hand, if you think not talking is a cunning plan, think again. It's virtually impossible to outsmart the skilled agents by not talking. How does he or she know you are a genuine buyer?
You will rule out the win-win deal with the reputable agents (the most common we do). But the property may be sold from under you and for less than you were prepared to pay.
On the flip side, we know that opening up to agents, good or bad, can be very expensive for the inexperienced. Interaction with selling agents has to happen and at our first meeting we explain one simple but golden rule.
You need tactics because inexperience can be expensive
Chest thumping at auctions looks good on TV but does it get you a lower price? In a lot of cases, no. Condemning real estate agents makes for great press but does it find you the right property? Probably not. And complaining about how you were "ripped off" will not get you back that $50,000 you shouldn't have paid in the first place.
What you need are strategies, tactics, experience and understanding.
For instance, who can really sell the property? Is it the lister, the sales manager, the person taking your name at the door or the agency principal? While you are dealing with the "doorman", someone else is dealing with the agent who can sell the property.
Putting an offer in and then accepting the agent's comments of "I'll get back to you in 48 hours" is ridiculous unless you want to pay more for the property. We can show you how to make an offer that counts.
Fear of missing out, strength of desire, doubt, mental tension, auto suggestion - the agent you are dealing with has a complete bag of tricks. Do you? If you don't, how much will that cost you?
Win-win deals are possible
We rarely play tricky or smart when it comes to high-quality selling agents. No matter what you think or hear of at parties, quality selling agents do exist and do not give properties away. We look for win-win scenarios where we can.
Being nice to a good agent is not going to give you a win-win deal. You may feel good at the time but as time goes by, you will see just how skilled that agent was. It's not really the house you thought it was or really wanted, or you paid way too much. The agent did his or her job and it wasn't for you, it was on you.
Many of our auction buys are done without the agents knowing an advocate is involved. Other times we buy in complete openness with the agent and advocate working together. The best part of it is that before we make an offer, we know a lot more about them than they do about us.
Under-quoting is not going to stop anytime soon
Under-quoting has been in the news lately.
The legislation has not stopped under-quoting - agents can still verbalise whatever they want, and many Inner Eastern agents do not state a price in writing at anytime.
- Market forces dictate prices
- Some agents think the old adage "quote 'em low, watch 'em go and quote 'em high, watch 'em die" is the right thing to do 100% of the time
- The legislation or regulatory authority cannot force selling agents to understand that if Coles-Myer quoted fridges for sale at $1000 and there weren't any, they would have the ACCC or the Office of Consumer & Business Affairs on them in a flash.
Part of us hopes this stops and helps improve the reputation of our industry.
Under-quoting can actually help our clients
On auction day, under-quoting helps us because with an under-quoted property, there's less competition. As the bidding gets further and further above the "bull----" quote price and closer to the real value price, more and more buying competitors get nervous and drop out for illogical emotional reasons when they could of, and should of, kept going and possibly bought.
When we buy, we do not rely on an agent's quote. We rely on research, information and preparation. We develop our buying strategies from detailed property reports, using the agent's quote only as a guide to where the vendor's expectations may be.
Case Study
We recently purchased a property where the quote price was $780,000 plus - despite the fact this was a great home and was recently purchased for the mid $800,000s. "The market has dropped" for some properties, I hear you say - but it hasn't for high quality properties with the "Wow" factor and we had direct comparables that had sold at over $900,000. In fact, after we had made a mid- campaign offer of high $800,000's, the quote remained the same ($780,000+) until it moved at the last minute to $800,000+. We bought it on the market at auction for an amount slightly above our initial verbal offer.
Was the agent doing the wrong thing? We think probably not as he is a reputable agent but he was pushing the boundaries. If anything, we appreciated the under-quoting as it helped our competition (other buyers) be under-prepared at the auction.
Over-quoting can also happen
Not all agents under-quote - in fact, some over-quote either because they:
- Misjudge a property (rare if the agent is experienced, but it does happen)
- Lie to the an owner to get a listing (and in fairness to agents, some vendors encourage the lying) or
- Represent a vendor with an unrealistic opinion (which is becoming more and more common in this market).
We find an over-quoting situation even more difficult to manage in an auction situation. We explain to our clients via a detailed Property Report where we think the good buying range is. We then have to make the difficult decision to suggest pest and building inspections and explain to our clients that they may spend $800 but at a $700,000 purchase price, it's a small price to pay for "insurance".
So where to next? Let's hope we headed to accurate quoting.
If you would like to get started, please fill out the Your Needs form on Step 1. Alternatively, if you would like to have a chat or you're just not sure what you want and need more information, please see the WHO ARE WE? and WHO ARE YOU? Sections.
Expressions of Interest are not subject to the usual rules
We have been involved in several 'expressions of interest' campaigns recently. A number of interesting issues came out of the first case:
- Dummy bidding legislation does not cover "expressions of interest" and boardroom auctions
- The solicitors were asking us to waive our rights to a cooling-off period
- The agent was stating that the Sale of Land Act and its amendments did not apply in this sale (??? What! - you can't do that - nice try!)
In the second case, we ran a multiple interest campaign in which we were able to ascertain other parties' interest. It's not appropriate to detail in a public forum how that was achieved, but the strategies resulted in us purchasing the property at $200,000 below what our client would have been prepared to offer in a normal private sale or competitive auction situation. Our suggestion is that if you see a property that an agent is running as an expression of interest, you really should get some help. If the agent is trying to be tricky and hasn't a clue what he or she is doing, then we should be able to save you a lot of money (and the more time you give us, the more alternative strategies we can consider).
Alternatively, if you are up against a skilled and experienced agent (eg some agents from Kay and Burton, RT Edgar, Marshall White, Jellis Craig, Hocking Stuart, Collins Sims, JP Dixon, and Hodges to name a few), you need to have somebody on your side or else there is a big chance you will get taken to the cleaners.
There is very little protecting you when it comes to Expressions of Interest, and these guys are not the fools that the press portray. They are professional, hard-nosed salespeople working for the other side. If you don't know how the system works and you are inexperienced, then you are not going to outsmart these people after reading one magazine article and seeing a few hot property shows.
Pre-auction tactics come in many different shapes and sizes
We recently had a complaint from a very large real estate agency (we have changed the amounts and location) regarding our behaviour when purchasing a property for a client before auction. He complained that the offer that we gave was too restrictive and put his company under tremendous pressure. It did and it was deliberate.
The facts were that this property was tremendously under-quoted. Great corner block, brand new house, 2 off-street car parks. The quote price was $1,200,000 - $1,300,000.
Our client, having bought through us in the area before, knew that what we were saying was correct. The place was valued at $1,500,000 - $1,650,000. Recent sales proved that was the land value.
Rather than wait for the auction, we decided the best tactic was to offer a solid amount before the auction and hope for a keen to sell vendor. The amount was a smidgeon over $1,300,000. When the reply from the agent was positive, we put an offer in.
We deliberately chose an afternoon and confirmed our offer in writing at 3.00pm with a 7.00 pm acceptance deadline. We did this because this is a difficult time for an agent to contact other potential buyers (and there would have been many), who are on their way home from work, picking up kids from school, or preparing dinner etc.
The initial response was that our offer was unacceptable. We asked if this was an agent response or a vendor response and then pushed two points:
- We would be withdrawing the offer at 7.00pm; and
- We would send the vendor a copy of the offer and state our reasons for withdrawing.
During the next few phone calls from the agent pleading for more time we pointed out:
- If it went to auction and got less than our offer, how would the vendor feel towards the agency;
- If it went to auction and we were the only bidder, how was the company going to get from the end of the range to our figure without vendor or dummy bidding? And what guarantees were there that we were going to bid at that level?
We explain to all our clients that we have an investor mentality and as it was still a week and a half until the auction, they might find somewhere else to buy.
We received two more phone calls from the agent stating it was company policy to ring back all potential buyers once an offer was made and that they needed 48 hours. We stated that this was not in our client's interests and it was pointless for the agent to make those calls because they would not have an offer to discuss - we would have withdrawn ours. We bought the place at 8.30pm that night.
A discussion with the company head has since led us to believe that there may have been several offers in excess of that figure and a number of salesman were most upset that their buyers were not given an opportunity to bid. It can be done - you can get around agents' tactics if:
- You have a rock solid strategy
- You have done your homework and know property values in the area
- The paperwork is in place
- You know where the bottom of the vendor's temptation zone is
- You are bold in your negotiations and have the carrots (sale for the agent and good vendor price) and the stick (letter to vendor) ready if agents are not doing their job
- You know who is the right person to be your contact in the deal (is it the lister, the agent, the chairman, or the head of sales?)
- You have a little luck.
The agency concerned is a good agency and we would use them to sell on our client's behalf. They acted in the vendor's best interests and tried to get more time, but in this case we think we had a big win for the "good guys" (our buying client).
Case Studies
"This turned out to be one of the best decisions we have ever made."
We have recently been through the stressful experience of searching for a new family home. We had been looking for a new family home for some time. Our requirements were quite specific, being a large home with up to six bedrooms, a small block of land and located within a certain short list of suburbs. With no real opportunities being identified, we did not believe that we would be buying a property in the short term. However, the perfect family home for us suddenly came onto the market. The property had a just a three week marketing period with an auction set for two weeks before Christmas.
After several inspections, we decided that this was a "must have" purchase. The home had recently been refurbished inside and out, and with the large number of persons inspecting the property on open house days, we expected that it would be popular come auction day. As this was a must have purchase, our solicitor recommended the services of a buyers advocate, in particular, Mr Mal James. After meeting and briefing Mal, we quickly decided to engage his services. This turned out to be one of the best decisions we have ever made. With just a little over a week until auction day, Mal and the team flew into action, they carried out an inspection of the subject property, and other similar properties in the area, and then provided a very substantial report identifying the strengths and weaknesses of the property, plus their opinion as to the likely price range on auction day. The report allowed us some immediate comfort that we were not going to bid on a "lemon".
On the morning of the auction, a buying strategy was finalised and a firm budget established. At the auction, it was soon evident that there were four keen bidders. It was also evident that one of the other bidders was also represented by a buyers advocate, a fact which would undoubtedly provide a challenge to us. Nevertheless, Mal stuck to his auction plan and was eventually able to secure the property for us, and within budget
We are indebted to Mal, not only for his skilful bidding tactics, but also for his pre-auction advice, his counsel during post auction proceedings and for his encouragement. We would not hesitate to recommend the services of Mal James.
John and Dianne Lockwood
Hill Court Macleod
"When prospective purchasers approach you they think with emotion and whilst you took that into consideration in what we wanted, you also guided us very gently in the right direction."
Hi Mal
Just wanted to thank you once again for your efforts in us gaining Willis St . We are delighted with the service and I have been telling everyone I know about you. You led us through the process in a logical concise manner where it became obvious to us that the decision should be to buy the property. Your handling of negotiations was superb, as I saw it the Vendors could do nothing else but accept our offer it made good sense to them and us.
As you know when prospective purchasers approach you they think with emotion and whilst you took that into consideration in what we wanted you also guided us very gently in the right direction. You were spot on in your assessment of Jennings St and we are glad we had the opportunity of your advice. Annette was particularly impressed by the way in which you worked with her and although only a short time we are proud to say that in the property game you are our "trusted Advisor".
When we are looking again (this time for an investment property for Lauren) we will call you first. Thanks again for you assistance. Annette also thanks you for your kind gesture regarding the flowers.
Best regards
Peter and Annette Tanner
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