Have you ever wondered why a property can sit on the market for weeks, and then all of a sudden when you submit an offer, there is suddenly another offer?
Many buyers believe that the agent is bluffing.
Occasionally they are, but it’s rarer than people imagine. In the majority of cases, the agent does have another buyer. Their buyer(s) have just been sitting on the fence, waiting for validation that someone else is also interested in the property. This is called Social Proof. and my colleague, Amy Mylius wrote a fantastic article about this phenomenon.
The reluctance to step forward boldly and without validation isn’t just restricted to Private Sale situations.
It happens at auction too.
Today we had a lovely recent past client join us. His assignment was thoroughly enjoyable but his first attempt at auction was via a Boardroom Auction (ie. a simulated auction ‘before the auction’ in the agency boardroom) and it all went to plan beautifully. He had mentally prepared himself for months’ of inspections and within four weeks, he found himself signing a purchase contract. His spirited enthusiasm throughout our assignment had him longing for a live auction experience… hence today was the day.
I bid in Richmond for an overseas client and the energy in the crowd was palpable. My observer stood with me and I asked him to see if he could identify any bidders. He looked at me quizzically and said “did the agent tell you who’s bidding, or can you see them yourself?”
Of course we can spot them. We do this every week, multiple times.
I look for visible nerves. People who aren’t holding brochures. Those clutching their phones and checking their watch for the auction bell time. Fidgeting hands, pacing, smoking… people exhibit nerves in multiple ways and when you take a deep breath and just observe, it does actually become easy to spot.
The auction didn’t go my way.
An emotionally attached buyer who arguably didn’t have a firmer plan than “I’ll just bid until I get it” won the prize. But the questions from my observer had me reflecting on the years of experience and tactics I’ve employed.
“Why did he bid in one’s?” was the question asked about the opposition agent who was apparently bidding for himself on the property. He threw out consecutive $1000 bids for more than $60,000 worth of bids. Not once did he try to ‘slam bid’ or intimidate with increments. Instead he chose to try intimidation with succinct, staccato bids. Was it a good strategy? Possibly not, but we’ll never know whether slam-bids would have had a different effect or not.
The thing about auctions is that you can’t replay them with a different twist.
My observer also asked “what happens if you start slam-bidding another buyer and the social proof of the exercise encourages them to keep stretching?” I considered the proposition and conceded that some buyers do indeed get carried away with the sense of competition and lose sight of the fact that they are fighting for a property, not fighting to win a battle of the wallet. At times like this we need to let time do the reconditioning. If I am up against a buyer who has ‘climbed into the ring’ so to speak and just wants to win at any cost, I need the gravity of the situation to hit them. Stopping, allowing the auctioneer to call the auction down, letting them announce the price and hearing them remind buyers that the property is going to be sold….this can be a valuable tactic when the competing buyer realises that they are bidding unconditionally at a price that may well be above their comfortable limit. Other times, I may break down the bidding to $500 increments and alter the amounts in an unpredictable fashion.
And to the inverse point, I’ve had countless auctions over the years that have passed in to me, only to find that buyers in the crowd have rushed forward to ask for the reserve. Agents remind them that they didn’t bid for the chance to deal exclusively with the vendor and their disappointment is heartbreaking. In so many cases, the same buyers are standing outside when we walk out some half an hour later clutching a sold sticker….. and they remark that they would have paid above the sale price.
Social proof is interesting and can undo so many keen buyers.
The best way to avert the curse of social proof is to have a firm plan. A firm plan involves a criterion set, robust comparable sales analyses, a clear conversation with the agent, due diligence (particularly a contract legal review), and an adherence to price-setting.
Those buyers who have a plan are almost always at an advantage.