HOW BERNARD SAVED $600,000 BUYING AT AUCTION
WHAT DOES IT MEAN TO NEGOTIATE THE “BUYER’S HIGHEST PRICE”?
Is the buyer’s highest price, what an agent tells you your home is worth?
Is the buyer’s highest price, what you want for your property?
Is the buyer’s highest price, what the neighbour’s home sold for?
Is the buyer’s highest price the MOST a genuine buyer is WILLING and ABLE to pay for a given property?
When Bernard approached Scott to bid on his behalf at auction, Scott asked him to sign an authority to allow him to do so. During that discussion, the topic of price came up. Naturally if you are going to bid on someone’s behalf you need to know how high you can go. If the auction gets to this figure and you are not the highest, that’s it. You walk away.
What this meant was that Bernard had to think long and hard as to what his maximum for the property would be. If someone paid $1,500,000 and he missed out, would that be ok? No? What about $1,600,000? And so on…
A figure of $2,000,000 was agreed to as Bernard’s maximum and as explained in the above video, the deal was done at $1,370,000.
So how did this happen? Simply put, at an auction, the only buyer who consistently pays their highest price is the second-to-last bidder. Once this underbidder is out, the home is sold with the next bid. In this case, Scott’s.
As an interesting side note, the owner’s reserve price (i.e. the MINIMUM the owner is prepared to accept) was $1,200,000. This means is that, from the owner’s perspective, they got an amazing result! But we know the truth.
SO HOW COULD A SKILLED NEGOTIATOR HAVE ACHIEVED A SALE PRICE OF $2,000,000?
There are a lot of 1%ers that contribute to a buyer paying their best price but there is one major rule that stands above all others:
KEEP EVERY BUYER’S OFFER CONFIDENTIAL FROM ONE ANOTHER.
If the agent negotiating the above sale had kept all offers confidential, then the final sale price would have been determined by Bernard’s perception of value and not the underbidder’s.
To be sure that this method works, it is often useful to ask a buyer to sign a declaration. This declaration should state that the offer that they are paying is the most they are able to pay and that they allow the home to be sold to the other buyer should their offer be higher.
When selecting your agent, be very mindful of the strategy they intend to employ when negotiating.
If you are not sure of the negotiation method your agent is using, ask them: “How will you make sure that the buyer with the most money will pay their absolute last dollar?” If they can’t answer this question to your satisfaction, then you should keep looking for an agent that can.