The Real Estate Conversation
The solution to auction tyre-kickers
Justin Nickerson of Apollo Auctions asks, should bidders pay a deposit when they register to bid at auction?
I've been involved in some 5,000 auctions over my career and there is a particular part of the system that needs to be urgently fixed.
I'm talking about non-bidders at auction – or more bluntly 'tyre-kickers'.
These are the people who turn up on the day, register to bid, but never had any serious intention of buying the property at all unless it was practically given away.
They are a waste of everyone's time and far from creating competition, actually make an agent and auctioneer's job much more difficult on the day.
Before an auction you can generally tell who is giving serious contemplation to bidding and buying and who is not. Most often you can tell a bit of a dreamer based on how much prior planning and research they've done. Now, a lot people camouflage their intentions from the agent, and if they want to do that, that's fine – even though I know it's not a 'strategy' that works. But the vast majority of the bidders that have a serious interest have usually interacted with the agent, been through the property a number of times, made an offer prior, as well as organised a building and pest inspection or a valuation.
The people that are in the other camp are the ones who turn up but think, "Well, we haven't mentally prepared ourselves to buy this property, but we're going to go through the motions of registering so we feel like we're doing it – but unless it goes for a figure that is just astronomically out of line with the rest of the market, we won't partake."
The major issue with these non-bidders is that it gives false hope to the vendor, which can turn into a problem for the real estate professionals involved.
One of the biggest frustrations auctioneers have in a situation where there are more tyre-kickers than genuine bidders is that, for example, we go inside to a seller just prior to the auction commencing and tell them there are six registrations.
Of course, the seller thinks that's brilliant, but we know in our heart of hearts that probably only two of them are really seriously considering bidding.
Then one of them doesn't bid because they're nervous so we go back inside and inform the vendor of the situation, but they're confused because we originally said there were "six" bidders.
The truth of the matter is that there are only two serious registered bidders – and there are four people there that are just holding a paddle.
My solution to this problem is that bidders should have to pay a refundable deposit to register for an auction.
I know this will be controversial, but it will benefit everyone, and especially the seller because they will know that every single registered bidder is serious about buying their property.
Perhaps bidders have to pay a $5,000 or $10,000 refundable deposit and if they're the buyer on the day, that in essence is their first deposit, with the second deposit due in an agreed timeframe.
I believe it's time that buyers recognised that registering for an auction is not just a "fun thing to do". It's a legal engagement and should be treated with the appropriate amount of respect.
When it comes down to it, buyers don't flippantly engage in a multiple offer situation but many do when a property is being sold at auction.
Let's treat the registration process as a serious first step to buying a property, which is what it should be, and you can only do that by making it a more important part of the transaction.
At the moment, all you have to do is hand your licence over and sign a form, which is essentially meaningless.
Paying to register to bid at auction would offer an extra layer of protection for the agent but it would also be respectful to the seller of the property as well.
I understand there are logistical issues with this proposal, but also if you implemented it on a mainstream basis, that takes all the game-playing from buyers out of the way. The buyer would have to clarify their intentions, which is whether they really want to buy the property or they do not.
The counter argument will mostly revolve around logistics, i.e. where does the deposit sit, possible bank fees and my old favourite – what about the person who registers during the auction?
From experience – the buyer who registers during the auction is the purchaser sub one per cent of the time, so are we building our regulations to suit our sellers and serious buyers or the miniscule percentile?
Remember when registration first became mandatory (in the relevant States) it was uncomfortable and not liked by buyers – now it’s one of the best moves that we have ever made as an industry.
At the end of the day, the current system is that we have every Tom, Dick, and Harriet turn up, register, fill out a form, and they may or may not bid but who really knows?
The better system, if you ask me, is we identify the serious people who want to buy the property. They register and they pay a $5,000 or $10,000 deposit to bid at the auction – which will be refunded if they're not successful – but they have to stump up financially to prove that they're serious.
The result will be that when we start our auction on, say, Saturday at 12 o'clock, everyone will know exactly how many people are there with serious intentions to buy the property – not how many people have simply filled out a form.