The Agent’s *RULES*

There is no doubt we find ourselves in a  tough buying climate (technically referred to as a Seller’s Market and characterised by demand outpacing supply, and defined by the auction clearance rate figures being above 65%). Auction success for most buyers is threatened by heated bidding, crazy budgets, and desperate buyers. 

It is little wonder that buyers are making early offers before auction day.

Some agents and their Vendors  simply reject the offers, adjust the campaign quote and run the property to auction, but others encourage their Vendors to ‘place the property on the market’ and it is at  this moment that the agent’s rules become really important to understand.

One of the biggest mistakes a buyer can make is assuming that all agents handle competing buyers the same.

We’ve had many distressed phone calls over the years with buyers asking us how to navigate through a negotiation which they themselves have instigated. 

Buyers who assume that they can buy a property exclusively and without competition when they know that the property has been advertised with a public auction date are naive. The Vendor has paid for an auction campaign and all of the media advertising which goes with it. Buyers who have seen the house or any of its advertising material are expecting it to sell publicly on the advertised date.  If any prior offers in the Vendor’s acceptable selling range are received prior to auction, the agent owes it to their vendor to inform every other buyer who has expressed interest in the property that the rules are changing. The auction is no longer going ahead and the property will sell prior. 

This is where things get interesting.

Once a sale is no longer occurring on, (or within three business days’ before or after) the advertised auction date (*in the state of Victoria), auction conduct rules no longer apply.

This means that the agent can apply their own process for how they wish to handle competing buyers. There is no legislation  which defines how agents must host a competitive sales campaign, other than the fact that they are bound by the Act to be honest and present all offers to the Vendor. How they go about facilitating the sale process is something which every buyer considering making a pre-auction offer should determine before they make any offers.

Some agencies have a published process. Others determine the process based on the number of competing buyers. Some let the Vendors decide. Others have their own individual preferences for handling competition.

It is essential as Buyers Advocates for us to know exactly what the process is before we pounce in with pre-auction offers.

Processes include, but aren’t limited to:

• boardroom auction the following day (the interested buyers meet at the agency and bid against each other in a boardroom where the auction is ‘simulated’ and usually hosted by an auctioneer. While it feels like an auction, auction rules do not apply. Cooling off periods are still available if the auction is more than three business days’ away. Conditional offers are generally not acceptable but the agents can define whether this is the case.
• Round-robin style competing; usually via phone. The agent commits to going around to each buyer, fully disclosing each incremental offer until the last man stands. 
• “Best and highest”; a horrid and secret-ballot style negotiation where buyers are given one deadline to submit their ‘best and highest’ offer. It should be a process where no offers are disclosed but it isn’t always the case. As Buyers Advocates we avoid this method of negotiation at all costs, unless the property is likely outside of our client’s budget. In these situations, a buyer can sometimes get lucky and buy at their best and highest price when they would most likely been outbid at auction, but in most cases it is a method where remorse or disappointment strikes. Buyers don’t like flying blind or ‘guessing’ prices.

Last week we were notified that an advocate had made an offer on a property we were planning to go to auction for in Brunswick. They made their offer a date-stamped offer with inadequate time for the agents to contact every buyer. On this basis the Vendor could have been forced to make a tough decision. We committed that we were ‘in’ and prepared to fight it. We swiftly made a slightly higher offer, overturned the previous offer, and agreed to the agency’s proposed ‘rules’ to advise other interested buyers that a boardroom auction would run the following night. Sadly, seven other buyers felt the way our buyers did. The property sold at the boardroom auction to another advocate for $185,000 more than our initial offer. While we were disappointed for our client, the rules and the conduct were both fair and understood.

Our Plan B option was quite different, but still fair and clear.

We had spotted a property which had passed at auction  prior to our client’s commencement. This double fronted Victorian beauty was located in one of Williamstown’s most envied pockets; just moments’ walk from the Strand, the beach and the local shopping strip. Offering three large bedrooms, a beautifully orientated rear living area and generous outdoor yard, and a well-maintained timber finish, we were able to prepare and gear up quickly to secure it. The rules were important to note though. The property had received offers below the Vendor’s reserve (which was later their asking price) and the buyers were still waiting to see what other offers would come forward. 

The agent was clear. If he received the asking price, he would sell the property without going back to any other buyers. He’d told them, and he told us. If however I wanted to try to offer a lower price, he’d be duty-bound to give the other buyers the opportunity to submit an offer too.

We did our comparable sales analysis carefully and decided with our clients that the asking price was fair.

We secured the property that evening.

Establishing the rules is essential because they can determine whether it’s a good idea to buy prior to auction, or a terrible idea. Not all competing-buyer processes suit all buyers, and making the decision which is right for you is vital.

Wishing our lovely repeat investors years of exciting WIlliamstown capital growth!

Beautiful WIlliamstown