The REIV has some good articles every now and then that helps to clear up the buying process.

Many of those searching for property are really unclear on how a reserve is set and how this can change in the selling process.  The basics of it all are that a vendor doesn’t have to set a reserve or provide the agent with a reserve prior to the auction taking place.

This is a massive frustration to many buyers no doubt. Nothing is more disappointing than turning up to an auction to find out you can’t buy the home you wanted, not because the market was prepared to pay more, but because the vendor wasn’t prepared to meet the market.

We haven’t seen too much of this with the hot market, but over the coming months we may see this more and more.

A little over a week ago, we discussed a situation of an agency disclosing the reserve throughout the marketing campaign of a property going to auction.

This is far from new, but what if an agency made a stand only to list vendors with a preset reserve and have this shown during the campaign.

Many might laugh at this, but I think this has legs.

Benefits would be:
1. Kudos with the buying community (who may be sellers)
2. No nasty hangovers of people who missed out
3. Less wasteful communication. The price is the price.
4. Encourages vendors to set reasonable reserves beforehand.

It’s an interesting discussion, one that I hope takes shape.

The auction wrap video for last weekend discussed the sale at 171 Union Street Brunswick West by Nelson Alexander. The unusual thing about the campaign of this property is that the reserve was advertised all throughout the marketing, prior to the auction. So the advertised price was the actual price $590,000 with a little note ‘no offers accepted before’.

What an interesting way to market property. Now I’ll make the point that the reserve was super realistic which always helps the selling process, but I think this did help buyers know a little more about where things stand in relation to pricing.

In the end, it was a run away result, selling for $729,000. We might see this form of selling gaining more momentum over the next few months and I think this would be a good thing.

An auction on Saturday received a fair bit of attention from a bidder in the crowd.

They were bidding as well as telling everyone what a disaster it would be to buy the place.

His words & actions didn’t align. You don’t bid on something and at the same time ridicule it to the crowd and other bidders. If you see a person bid under this scenario, then you can be sure they want it and their plan is likely to backfire.

If a real genuine question is to be asked by bidders then fair enough, but when used in an untrue sense, it simply won’t work.

Over the next three weekends around 1200 homes will be auctioned. This rise in stock levels is likely to be welcomed by many bidders, after facing tough competition in recent weeks.

It will be interesting to observe whether strong clearances will feature this weekend, to continue with the long running clearances in excess of 80%.

Below is how this weekend stacked up, over the past three years.

2 August 2008             436 auctions, clearance rate of 63%
4 August 2007             517 auctions, clearance rate of 85%
5 August 2006             402 auctions, clearance rate of 73%

Source; REIV

Many people are unsure of the auction process, especially what occurs if the property is ‘Passed in’. If an auctioneer declares that the property is to be passed in, this means that the bidding has not yet reached the vendors reserve price and the person with the highest current bid will have the first and exclusive right to negotiate with the vendor.

Securing the right to negotiate first does not cost anything and you have created a contract between yourself and the owner entitling you to negotiate before anyone else.

Once the auctioneer has announced the property to be passed in, it is too late to attempt to put in another bid to secure the fist negotiating right. The auction is effectively over.  The only chance to secure the property you have in this case is if the highest bidder does not meet the vendors reserve price.

So, if you are bidding and very interested in securing the property, it is important to be this person. It doesn’t matter where you come into the bidding process, as long as your hand is in the air last. 

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For those still searching for a home prior to Christmas, you might see a number of Twilight auctions about.

These auctions are typically done on a Wednesday or Thursday night, mostly in the couple of weeks prior to Christmas.

It’s well worth a look if you’ve never experienced one; they certainly have a different feel about them. Twilight auctions can also have the benefits of some highly motivated vendors eager to reach a deal with a prospective purchaser.

Often those who have missed the advertising deadlines and want to sell this side of Christmas adopt a ‘twilight auction’.

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On Saturday I conducted an auction in the inner North.

A number of bidders were present and it was typical on many auction situations. One bully. Three timid bidders.

Now, when I use the word ‘bully’ I use that only for the bidding style. The bidder was actually a terrific person and bid well: Without hesitation.

All other bidders hesitated, procrastinated and looked uncertain, while the ‘bully’ bid strong and to the point. Whenever a bid eclipsed him, he always came back razor fast and put the pressure straight back on the other bidders.

Just as importantly he did this without the ego, he just gave the impression he was there for business.

This I feel helped the winning bidder enormously. Well bid!

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An auction on Saturday in Abbotsford proved an interesting case study for dealing with after auction negotiations.

Competitive bidding started at $500,000 and progressed slowly to $633,000 before passing in. The auctioneer also referred the bid inside to the vendor, not once but twice.

In my opinion the auctioneer made 3 mistakes, I would like to share these with you:

• Starting the bidding ‘too low’

For bidding and emotion to flow in the auction process, most would agree that momentum needs to be created. Starting too low in my opinion can damage the process a little, people start to think they’ve bided too much when the real figures start to emerge. Low is okay, too low is not.

• Not explaining what happens in the event that the property is ‘passed in’ properly and clearly.

This is where a number of auctioneers fall down. No clear-cut rules on what’s going to happen if the property is not announced ‘on the market’ and passed in instead.

Many real estate agencies have different ways to reward the highest bidder, for example:

1. A prominent eastern suburbs estate agency gives the highest bidder 5 minutes to reach a deal 1st with the vendor before involving any other parties.
2. Other agencies give you the option to pay the vendors reserve only otherwise negotiations are opened up to anyone else on the street.
3. Some companies enforce a no time limit ‘see if we can reach a deal’ scenario to the highest bidder.

My point here is that the buying public are often confused. This is too much of an afterthought.

• Going inside more that once

I think this sends the wrong signal. The agent is pretty much revealing the vendors hand that the reserve is super close. Keep it professional, keep the inside chat to one and if you need have a colleague inside who can rely information to the auctioneer if it’s needed.

If you’re a vendor selling your property, I would take some of the information above on board. If you’re buying Real Estate, then the above can be exploited and used to your advantage to tip the negotiations your way.

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Changes to the Sale of Land Act and the Estate Agent Act will prohibit Auctioneers from accepting late bids; this will come into effect as of the 30th June2008.

You might have seen the situation before, the property is announced ‘sold’ then a late bid is spotted and the bidding is re opened. This will now be illegal practice. A property announced ‘sold’, is just that: sold.

The Auctioneer will now be required to read out the new rules before the start of the auction so expect some changes to auctions that you’re attending. Many good agencies have already put this in action.

Important to note is that in the event a property is ‘passed in’, this no longer means auction conditions are in place even if your negotiating right after the event. The property will now be deemed as a ‘private sale’, this means a sale is not effective until the vendor has signed the contract of sale and contracts are exchanged.

So if a deal is reached straight after the auction, hurry up and get the contracts signed to avoid disappointment!

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I attended a very competitive auction on Saturday, you know one of those ones where two parties are slugging it out and both desperately don’t want to miss out!

Here are two observations I picked that tend to happen more than you might think:

1. The two bidders out of a crowd of 60 where standing one metre from each other. This happens all the time and must be an uncomfortable experience for both parties.

When people are nervous and a lot is on the line, buyers tend to group together at auctions and it’s amazing how often they are standing right next to each other ‘fighting it out’ for the property.

When a house is being cleared out before the auction many prospective bidders walk out on to the street and head to the most visible spot to see the auctioneer, the thing is that any other buyers planning on bidding are doing the same thing.

This if fine if it doesn’t bother you, however often many buyers bidding are with partners or people they need to consult with throughout the auction and this makes it difficult when the competition (other bidders) can hear everything you say.

A good sign for spotting another bidder is to take a cheeky look at their back pocket. If you spot a chequebook then it’s a good chance they may be bidding!

2. This particular property on Saturday was ‘on the market’ to be sold at the $1.1 Million mark, the two parties bidding at this particular part of the auction were bidding in $500 increments which meant that each group bidding at the auction thought that the other bidder may be at or close to the end of their limit.

The property ended up selling for $1.325 million which was $225,000 above the point the property was placed ‘on the market’ at. Right throughout this auction, very rarely did any party raise the bid higher than $500 and many bids where ‘hesitant’ ones at best.

In my opinion, if one party took a more assertive, confident and less hesitant approach this could have been purchased for much less. While not suitable for every occasion some bolder bids made more quickly and in total confidence would have:

A: Given the other party less time to think
B: Going an extra $500 is just that, $500. We forget how quickly that can tally up however if we increase the increments to $20,000 all of a sudden the pressure starts to build on your competition.
C: Bigger bids give the impression you have more ‘spending power’ than the other bidders at the auction. This often can make property bidders who are competing against you ‘give up’ before they have even reached their limit and if that happens then you have done a ‘professional job’ at auction bidding!