Understanding the “Buyer’s Highest Price”
What does it ACTUALLY mean to negotiate the buyer’s highest price?
Is it:
- What an agent tells you your home is worth?
- What you want for your property?
- What the neighbour’s home sold for?
Or is it the ABSOLUTE MOST a genuine buyer is WILLING and ABLE to pay for a given property?
Bernard’s Auction Success Story
When Bernard approached Scott to bid on his behalf at an auction, Scott needed to know Bernard’s maximum price limit. They agreed on a figure of $2,000,000. However, as the video explains, the deal was finalised at $1,370,000.
How did this happen?
Put simply, at an auction, the only buyers who consistently offer their highest price are the bidders who miss out. Once these bidders have maxed out, the home is sold with the next bid. In Bernard's case, this was Scott’s winning bid.
Owner’s Perspective
Interestingly, the owner’s reserve price was $1,200,000, meaning they got an excellent result from their perspective. However, Bernard saved significantly, paying $600,000 less than his maximum limit. Was the highest price achieved on this occasion? Definitely not.
Achieving the Buyer’s Highest Price
So, how could a skilled negotiator have achieved a sale price of $2,000,000? The key lies in the understanding that there are no two buyers the same. They all have different jobs, they all have different reasons to buy, they all have different perceptions of value.
In the same way a skilled agent should be letting each buyer have their own emotional reaction to your home at a private inspection (read more about that here), keeping every buyer’s offer confidential from one another is the key to achieving the highest price for your home. This ensures the final sale price is determined by the best buyer's perception of value, not the underbidder’s.
Get it in writing
To ensure the method works, it's useful to have buyers sign a declaration separate to the contract of sale stating that their offer is the highest they are prepared to pay and allowing the home to be sold to another buyer without notification if their offer is higher. This makes it crystal clear to the buyer that they need to put their best foot forward.
Choosing the Right Agent
When interviewing a potential agent, it’s tempting to focus purely on what price they are promising you, but it’s the agent’s negotiation strategy where the real money is made and lost. Take a good amount of time to ask the agent how they will make sure that the buyer with the most money will pay their absolute last dollar. If they can't answer satisfactorily, keep looking for an agent who can.
One last thing… The (real) numbers don’t lie!
When it comes to the REIV or major portals, reported auction clearance rates are almost always overstated. The clue comes in the fact that their clearance rates are based upon the REPORTED data they receive. This creates an inconsistent data set as the agents who don’t sell their property at auction can elect not to report it.
A more consistent source of data for auction clearance rates is SQM Research. (see sqmresearch.com.au). Their clearance rates are calculated by taking a snapshot of all homes coming up for auction in a given area and then they review each of them after the weekend. More often than not, their clearance rates range between 50-60% in a “balanced” market. Something to think about before you part with $4000+ for a campaign?
Comments