Kevin Turner's Real Estate Talk
AVOIDING BIDDING WARS
Kevin: I’m joined now by Auctioneer of the Year for Australasia, the best auctioneer in Australia and New Zealand as judged by the various institutes, Justin Nickerson. I’m keen to know from Justin about bidding wars, how do you avoid them, but more particularly, how successful are auctions nowadays? Are we finding more selling before the day of auction?
Justin: Yes, at the moment, we’re actually finding it’s a quite high percentage of things that sell prior. You generally find that in a changing market where the market is either going up or going down. That’s when you sell a lot more prior. At the moment, we’re experiencing a lot of situations where sellers don’t really want to risk what’s on the table prior to auction.
Kevin: When you say the sellers don’t want a risk, in other words, they’re not confident that those people would go to auction and bid?
Justin: I think they’re not confident that their result will be improved on auction day. The agent’s advice obviously plays a big part in this, but in a lot of cases, an agent is probably saying “Look, we found our buyer. They’re extending themselves to try to buy prior to auction. If we take them to auction and they feel that maybe the competition levels aren’t there, they only way they’ll go as backwards. They won’t feel the confidence that they’re going to auction and then get pushed by somebody else.”
Kevin: This highlights for me a question, and you may not even want to answer this, but in terms of the skill of the agent, surely, a skilled auction agent would want to go to auction.
Justin: In most cases. Look, in the training we do, we say you never try to sell things prior, but it happens as a by-product from time to time. But generally, the really good agents will recognize in the last four to five days out from auction, if they only have one buyer or they have one buyer who might have cleared their way out from the rest of the buyers, they’re probably a pretty good candidate that you might take that one and sell it prior.
But we’ve always advocate that should never be your first port of call. Your first port of call should always be going through to auction day, but from time to time the right situation might pop up where you do sell them prior.
Kevin: Under competition, that’s when you get the opportunity to get a premium price or a price that you might not get under other circumstances. You lose that opportunity if you’re going to negotiate with one buyer prior to auction, surely.
Justin: Absolutely. We always say the two ingredients you need to get the best price are an emotional buyer and competition, and you do lose competition. You might have perceived competition, but you don’t have real competition if you don’t go through to auction day.
Kevin: Because quite often even with private trading, this is where there is no auction or tender involved, you could have competitive offers. That’s when you see it’s almost like a silent auction then, when you have two people competing against each other.
Justin: We had two yesterday, Kevin. We had registered bidders there who just wouldn’t partake, multiple registered bidders who just didn’t want to engage. Then you pass the property in, and straight away, they’re behind closed doors and filling out their offers immediately after. It does become almost like an auction after the auction, but you lose that transparency as a buyer of actually seeing where your competition is at.
Kevin: Also, the seller loses the opportunity to get an unconditional contract, because a sale under the hammer is cash unconditional – it must settle.
Justin: Yes, absolutely right. Although in some cases, post-auction offers can be cash unconditional. You just think for that buyer’s perspective, if you just put your foot forward, you would have made a better chance to do it while the auction is ongoing, but they feel more comfortable going behind closed doors and filling out a bit of paper.
Kevin: Was the outcome for the seller in that situation – don’t talk figures – was the outcome acceptable? Did they actually achieve what they would have hoped for under bidding conditions?
Justin: Yes, if they had bid it, they would have bought it, maybe even a little bit less. Without going into figures, the reserve price that was set was actually less than the figure it sold for after in that multiple offer situation. Who knows how it would have unfolded if they actually had the courage?
Kevin: Selling before auction, too, also opens the possibility that the buyers may want to put some conditions on the contract. That’s always a difficult situation. The figure might be acceptable or even better than acceptable, yet it will have a condition with it. What do you do? Do you take the risk that it’s going all the way through, or do you say no, that’s not acceptable, we’re going to go all the way to auction?
Justin: At the risk of sounding like I’m sitting on the fence, it is very much a case-by-case basis, I think.
Kevin: Of course, it is.
Justin: We always say, when you’re negotiating with a buyer, you have to get the buyer to understand that there are two things in play. The first one is the price and the second one is actually the risk factor that goes into it. Sometimes you actually have to compensate the seller for the risk of property not going to auction or for the risk of the terms being not as favorable. That obviously feeds into things as well.
Kevin: When you do go to auction, how do you avoid a bidding war? Is that possible?
Justin: If it’s a really desirable property, probably not, but I think a lot of buyers take a wait and see approach, which is the wrong approach, because on the day you want to be looking as confident and as comfortable as you can to intimidate the other buyers. If you can start bidding, even if you bid quickly, it just sends a message to the other buyers saying “I’m here to buy the property,” which is how you want to present yourself.
Kevin: What should be the structure for someone who doesn’t want to get caught up in that kind of situation?
Justin: Open up at a reasonable figure. The lower that open the auction, the more that you give confidence to the other people who might be there just to see what happens, whereas if you come in at a more aggressive level, then it certainly puts you in a better position to intimidate the rest of the buyers.