Each weekend up to 800 properties are auctioned across Sydney. Agents tend to judge the success of each campaign relative to the reserve price. If the property is handed in below the reserve price, it means that the campaign has failed. If bidding reaches or goes over the reserve price, the auction is judged as having been successful.
Many homeowners are unaware that at or above the reserve price the auctioneer can legally sell the property on behalf of the vendor. Once the auction reaches the reserve price, the agents are in full legal and practical control of the sale.
The seller has effectively lost control of their property at the reserve price.
A lot of consumers are aware of the power that an auctioneer can exert if required. As a defensive play, many vendors simply set a high reserve. But the agents have many tricks to ensure the bidding and the reserve meet ‘on the day’.
Some of these tricks involve getting the buyers up in price and many involve getting the reserve price (the owners price) down to ‘meet the market’. Once the reserve has been met, if the bidding keeps going, great. If not, well at least it sold.
If you are aware of some the reserve price tricks that could be used on you during an auction campaign, you will be better prepared and more able to defend yourself. Here are five (5) common tricks you should be aware of.
1) Setting a high reserve can lead to intense pressure at the auction
While many vendors sign up for an auction with the apparent protection of a high reserve, most agents know there are several points in the campaign where they can pressure a vendor to lower their reserve. One of those is at the auction itself.
If the auction stalls below the reserve price, the auctioneer will halt proceedings while instructions are sought from the vendor. Immense pressure is then put on the vendor when everyone who has gathered to watch the auction turns and looks at them to see if they are going to ‘meet the market’. Agents only need an affirmative nod of the head to drop the reserve price to where the bidding has stalled and suddenly ‘it’s on the market’.
2) A (low) buyers guide becomes the reserve price
A low reserve will attract lots of bidders. A price guide below the reserve price will attract even more bidders. Apparently the more bidders attracted to the auction, the higher the price, even though you attracted them with a low price in the beginning.
As a seller, if you agree to market your home using the flawed logic of ‘a low price attracts more bidders and a higher sale price’, be prepared for deceitful tactics to be used on you in return.
If the auction stalls below the reserve price, the agent and buyers will expect you to honour the advertised price guide. After all, ‘you agreed to market your home at that (low) price’.
3) Conditioning and Crunching
Conditioning is where the agent praises your home to win listing and then systemically points out its faults during the campaign to drive your price expectations down. Some agents condition subtley, others are more transparent and crass in their execution of the strategy.
It’s normal for a low offer or two to be submitted to the owner prior to the auction day. It’s a part of the conditioning process, softening the seller up for auction day.
The crunch comes if the bidding stalls below the reserve. The agent portrays an unmistakable sense that the deal has to be done ‘today’ before we ‘lose them’.
If the auction stops short of the reserve price and the agent insists you drop the reserve to sell today, resist the crunch. Sales books are full of tactics teaching salespeople how to overcome, ‘no’ and ‘we want to think about it’.
Aside from the property not selling “under the hammer” is it really that negative if you choose to think about it? In a rising market like we are experiencing at the moment, the buyer is under more pressure than the seller.
4) Stimulate the bidding
At auctions, there are often a number of bidders who will hold back until the reserve price has been reached. If the auction has stalled agents will often encourage an owner to drop the reserve price to ‘stimulate the bidding’ and draw out the reluctant bidders.
Agreeing to this tactic legally puts the property on the market at a price you as the vendor never would have dreamed of selling at in the beginning of the campaign. It is a massive gamble to drop the reserve price in the hope that you will stimulate the bidding. It is an all or nothing tactic from a vendor’s perspective. It’s great from the agent’s point of view though given they get paid even if the property sells at the lowered reserve price.
5) The emotional buyer that’s going to keep bidding
“We stopped bidding because the other bidder was just going to keep on bidding. They really wanted it!”
How many times have you heard this or a version like it from the under-bidder? What they are effectively saying is that the property would have sold for a higher price if only there was another buyer around to fuel the bidding. As a vendor, once you are over reserve, you can watch the emotional bidder blast the competition out of the water. Even though its obvious they would keep bidding, you legally have to sell to them when the second bidder stops bidding.
Yes! You have to sell to them even though they would have paid more for your home.
The crowd will clap and the agent will tell you how much over the reserve he or she has achieved for you. But you could have achieved more for your property had you selected a superior selling method.