Why we like auctions

Buyers often say to us “We hate auctions. Can’t we buy it prior?”

Sometimes making an offer on a property prior to auction is the appropriate action to take, but only when the following three elements align;

• The vendor, agent and agent’s legal rep are each prepared to sell the property prior to auction
• The price is fair and justifiable
• The buyer isn’t in a position of disadvantage

Unfortunately, this last point is often the one that buyers overlook when they decide to place an offer prior to auction.

In this aggressive, seller’s market many feel that making an offer prior is the optimal thing to do because they dread competition and loathe the idea of waiting it out for weeks. What they often neglect to do can become their greatest blunder.

If a buyer doesn’t ask the agent how the process will be handled, they could be walking into a much tougher situation than a public auction.

The difference between an auction and a negotiation prior comes down to agent discretion.

An agent has far more discretion and control over a competitive negotiation process than they do of an auction. Auctions are bound by strict auction rules. A talented auctioneer may be good at extracting final bids, but they can’t and won’t disadvantage a buyer.

However in a private negotiation format, the agent can determine several things, and it is these things that can sometimes turn what was going to be a fair fight for the buyers into a mysterious and difficult situation to navigate.

Agents can control the competing buyer numbers, the time frame, conditions and methods of negotiation when a public auction is not applicable. For example, when an acceptable offer is received prior to an auction, the agent can determine who to contact, how much time these buyers have before the offer process is finalised, whether any are permitted to have conditions, and most importantly – how the negotiations will be conducted.

Not all prior-to-auction sales are conducted transparently. Buyers who assume that they have the upper-hand are often mistaken. A buyer who is suddenly faced with a ‘best and highest’ scenario risks control of the situation altogether. No longer are they fearful of losing at auction, but they are faced with a horrible dilemma. To pay their maximum budget price and risk beating their closest competitor by tens of thousands of dollars, or apply a conservative approach and lose the property to another buyer for a price that they’d have happily paid on auction day. Worse still, for some who apply a stretch budget in this closed-envelope situation in a desperate attempt to secure the property, they are sometimes the only buyer.

Not only do agents have discretion, but they also have information.

CRMs are sophisticated and agents track buyer activity at every opportunity. When names and numbers are collected, and contracts are emailed out, the collation of data doesn’t stop there. Bidding limits, under-bidder amounts, past inspections and enquiries are all captured in their tablets.

It is sometimes this information that can determine how an agent opts to handle the negotiation process. For example, if two strong buyers are emotionally attached to a property and both have previously expressed a willingness to fight hard at auction, a boardroom auction scenario may deliver the best result to the vendor. However if the agent has information on hand to suggest that there is a wide gap between competing buyer’s budgets, (or if they are aware that this is the only likely buyer on the property), they may opt for the ‘best and highest’ method.

Buyers need to be prepared to ask questions about how the pre-auction offer process will be handled, and they need to be confident that the auction competition is genuine if they are opting to put in an offer prior.

Auctions shouldn’t be feared. Sometimes a fair fight is the best fight of all.