Buyers can be better informed when it comes to navigating auction pricing

We often see underquoting stories emerging in the media. This has been happening for over thirty years.

Underquoting is a pricing methodology that is sometimes adopted by agents and/or agencies. The premise of underquoting is quoting a price range that is below the vendor’s expected price. The intent of underquoting is to attract buyers with lower budgets who perceive a potential bargain. Some will fall in love with the property and stretch their budget, while others will blindly trust the price quote. Either way, some buyers will miss out and feel upset about wasting their money and their emotional energy on a property that they never had a chance to secure.

Ten years ago, I wrote a blog about underquoting. The theme of it related to the times when buyers should save their building inspection money for shoes instead.

Is it a frustrating practise? Yes.

But so many do it, the agents and vendors who do not underquote are often punished for quoting honestly. Unfortunately, many buyers are accustomed to underquoting and they add a ‘standard rule of thumb‘ amount to the quoted price. This, in turn can disadvantage the vendor who has accurately set a price reflective of their auction expectations. Many buyers who add their ‘rule of thumb’ price will turn from the campaign to chase lower-priced campaigns.

Due to the variability of quoting regimes though, buyers should not adopt this methodology. Applying a ‘rule of thumb’ additional amount may secure them the property, but they also risk overpaying.

Today’s blog focuses on the ways that buyers can make better budget-setting decisions with information at their fingertips.

First and foremost, buyers need to understand the Statement of Information, and the flaws it can produce when “comparable sales” aren’t comparable. This blog, penned a few years ago now explains the relationship between the quoted range, the reserve, and the Statement of Information.

Recognising that vendors can legally opt to nominate their reserve price within minutes prior to the auction is important. Some vendors may have had a change of heart about the price that they would be willing to accept for their home. Their circumstances may have changed, or the market may be strengthening, week on week.

In these circumstances, is underquoting the fault of the agent? No. And it does happen often, particularly in a strengthening market.

The second, and most important part of the task for buyers involves pricing analysis. It doesn’t require a valuer to conduct this task, and there is broadly enough publicly available information for buyers to price a property within a reasonable tolerance. There are a few methodologies that can be done in tandem to give a buyer a realistic sense of a property’s market value.

But it takes some time and dedication.

This blog, penned almost two years ago steps through the various ways that we approach the pricing analysis task.

Buyers can optimise their search from the beginning to ensure they are shopping in the right locales, and searching for dwelling types that fit within their budget. Conducting a robust ‘feasibility test’ is an insight into the current market and recent sales values for a given area and dwelling type. By focusing the search into the suburbs that make better budget-sense, buyers can be better placed to recognise the properties that are more likely to sell within their chosen budget range.

This exercise is documented here, and uses some examples to illustrate the process.

Lastly, it is important to recognise that sometimes properties do sell significantly above market value, irrespective of how they are quoted. It only takes two committed bidders to bid emotionally, (or irrationally) for this to happen. Two buyers may have a valid reason for their preparedness to break a price record. Sometimes, it’s a case of needing to buy within a certain time frame. Other times, buyers have stretched their willingness to pay over the odds due to a personal reason for needing to buy a particular property. A parent may live nearby, the buyer may own adjacent land already, and so on.

But having a well-founded idea of market value will help buyers set informed budgets. It will also be more likely to help the buyer secure a property within a reasonable time horizon.

While I’m not suggesting we should all go out and buy amazing shoes, buyers will certainly save on their building inspections bill if they can adopt a few of these tips.