I always cringe when I hear about a buyer paying more than a property is worth, not just a little bit more but way more. This is one of those stories which, unfortunately, happens all the time.
I attended an auction for a modest three bedroom property in the inner suburbs of Melbourne a couple of weeks ago on behalf of a client. The bidding was far from aggressive but nonetheless, it exceeded the limit that I had agreed with my client so I ceased bidding and stayed around to see what happened. The property passed in and the highest bidder was invited to “come inside”, as it’s often called, to take advantage of their first right to negotiate. What they had bid was $100,000 under the reserve.
So they agreed on the spot to pay $100,000 extra to meet the reserve.
Let’s just think about that for a second.
They were the winning bidders, meaning they were the only people who thought the property was worth what they had bid. And, when they got inside, they discovered that the vendor and agent thought the property was worth $100,000 more than anyone else outside was prepared to pay for that particular property.
Do you think maybe, just maybe, the property was overvalued?
When a property gets passed in
We often hear about properties ‘passing in’ at auction which is a scenario that’s really of no benefit to either party. The seller doesn’t get what they’re asking for and the price is too high for the buyer.
At an auction if the property doesn’t meet the reserve then it ‘passes in’ with the highest bidder being given ‘first right to negotiate’ or come inside as the agent would say.
It’s a daunting situation for a buyer as they effectively go from a very public and transparent process outside to a one-on-one negotiation inside with a real estate agent who does this for a living, week in week out and who, dare we say it, is highly motivated by a percentage based commission to get the highest possible price for the property.
Always remember, the agent is acting on behalf of the seller, not the buyer. It’s their job and many of them do it very, very well.
But be aware that however convincing the agent appears, you can bet your deposit they are highly skilled at emotion based selling and will employ a number of tactics to make you believe they are giving you a great deal that won’t come again.
But it will.
And that’s what makes me cringe.
Get your negotiator on
If you find yourself in this situation, I’ve listed a few tips on how you can sharpen your negotiating skills to get the best outcome possible. First, acknowledge the following:
1. You are the highest bidder for a property which, in most cases, has been on the market for 30+ days. This is good leverage.
2. Remember, you have to respect the fact that many properties in the current climate will still sell post auction, and all parties are motivated to get a deal done on auction day. If you try and be too cunning, the vendor may take it to private sale.
3. The agent will not respond to arrogance, especially since this is their domain. If you’ve done your homework, you’ll know where there is a deal to be made.
4. When you get inside, take a deep breath. You are close to buying the property but there is still some hard work to be done
Strategies to turn you into a pro negotiator:
1. Do your homework. Lots of it. Make sure you know the most recent sales in the area. The agent will start to reel off properties and sale prices to make you feel like this one is of equivalent value….even though it just passed in. You need to know whether they are comparable properties and by knowing the detail you give yourself a better chance of influencing. Don’t be fooled by “the property four doors away sold last month for $XXXX,XXXX” line. That property is not this property. Hold your ground and stay focussed.
2. Start by asking lots of questions. What’s the vendor seeking? Why do you think it passed in? Who is the vendor? Why are they selling? Have they already bought? Ideally you haven’t disclosed too much information to the agent through the campaign and they won’t know your budget.
3. The agent will do their best to make you wait while they speak with the vendor after each of your offers. Don’t be worried when they come back shaking their head. Keep digging for the price that will get it done, as close to what you ‘passed in at’.
But if you want to avoid the process altogether, then let us do the homework and go up against the agent. You may just save yourself $100,000.
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