KEEP ALL OFFERS CONFIDENTIAL!
Auctions allow buyers to find out eachothers budget.
This results in the best buyer only making one extra bid once the second highest bidder cannot go any further. This usually results in the property being undersold.
The most reliable way to get the highest price is to insist on a negotiation method that doesn't allow buyers to know what eachother are bidding.
Each interested buyer should sign a document to acknowledge that the price they are paying is the highest price they are prepared to pay and they allow the agent to sell the property to another buyer should their offer be higher.
Auctions are very popular in Victoria. Particularly in Melbourne. Every weekend hundreds of homes go up for auction and to many consumers, this seems like the best way to go.
However, there is an elephant in the room when it comes to auctions that isn’t often discussed. To buy at auction you do not necessarily have to pay the absolute most you were prepared to pay.
Two buyers are bidding for the same home. “Buyer A” has a maximum budget of $500,000 and “Buyer B” has a maximum budget of $530,000. Both buyers are prepared to go to their limits to secure the home as they both love it.
The “reserve” (the LOWEST price the owners have authorised the agent to sell at) is set at $480,000.
The auction starts, as often they do, much lower than the reserve. Let’s say $450,000. It then begins working its way up. Reserve is hit in no time and we are down to our last two buyers.
You will notice at an auction that as the buyer’s limits are reached, the size of the bid diminishes. Often to as low as $500. Therefore, when “Buyer A” makes their final offer of $500,000, “Buyer B” only has to offer $500,500 to secure the home.
Some might say that this is a good result. The seller got more than what they wanted didn’t they? They did, BUT the sole purpose of an agent is to find the best buyer and make sure that buyer pays the owner their absolute best price, isn’t it? In this case the agent was off the mark by $29,500!
So how could you make “Buyer B” pay their maximum offer of $530,000? Simple. KEEP THE BUYER’S OFFERS TOTALLY CONFIDENTIAL FROM ONE ANOTHER.
In this case “Buyer B” will have no idea what “Buyer A” can pay and will be forced, if they really want the home, to offer $530,000.
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.
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.