It’s said that the most misleading cons contain an element of truth. A classic example is this main one-liner spoken by auction agents – and it seems after more than 30 years of seeing it – sellers are still falling for it hook line and sinker:
“When you put a price on your property the price is driven down. At an auction, we’re driving the price up”
Which sounds enticing doesn’t it? We all want our sale price to go up, right? And yes, there is an element of truth in it. At auctions, the price does go up – because they start so damn low.
Here’s what I hope you remember: If you start low you’re more likely to finish low.
And surely it’s where you finish – where the price ends up at that’s most important?
Let me explain.
In the first episode, we shared why auctions reduce the number of buyers competing for a property – which means less leverage for the sellers. But for a moment lets put that aside and say that by a stroke of luck there are a couple of hot and cashed-up buyers bidding at an auction.
And you are one of them – you love the property and have turned up prepared to get it – you have a bank check in your wallet for the 10% deposit of $60k. Meaning if you have to you’ll bid to $600,000.
Now the first thing to understand is that “Value is an opinion.” What something is worth to you can be wildly different to what it’s worth to the next person – especially for property which has a strong emotional element.
This means that each buyer will have turned up with a different amount they are prepared to bid to. The thing is, at this point, you don’t know how high the other buyer will go.
The auction starts at low at $540,000…
There is some spirited early bidding by a few bargain hunters who drop off around the $560 mark. Then it slows.
You keep holding back – keeping your cards close to your chest – waiting to see what happens – until the bidding hits $565 when it’s announced: “The property is on the market”…
Meaning the sellers’ reserve has been reached and the property is definitely selling to someone today.
So you now know the sellers bottom dollar. But nobody knows your top dollar.
And it seems there’s only one other buyer left in the game who bids $570.
So you finally raise your hand and bid $575.
The other buyer appears disappointed – they’re huddled in the corner, looking unsure with agents in their ear egging them on. And not wanting to miss out they make a last-ditch effort to get it bidding one more thousand – $576.
So now it pretty clear the other buyer is close to, if not already at their limit. Still, nobody knows your limit.
So the bid is against you – the auctioneer is calling … “Going once to the couple in the corner at $576 … going twice…”
What are you going to do now?
Bid $577 right?
At which point the other buyer, shaking their head, accepts defeat and stuffs their hands in their pockets.
“Going once… going twice…” Sold to you under the hammer for $577,000
The agents are jumping up and down shaking hands and patting themselves on the back saying … “See – auctions are great – it sold for $17k more than the sellers bottom line…”
“With a normal sale the price comes down – at auctions we drive the price up”
Meanwhile, you can’t believe your luck. You just got it for $23k less than you were prepared to pay.
Now – lets imagine for a moment we’re at the same auction but this time we turn it upside down – As the auctioneer – instead of starting low and trying to bid up – I’m going to start at a high price and reduce – and the rules of the auction are simple … as I call out reducing prices – the first buyer to put up their hand buys the property.
Because when the price starts low, the highest buyer bids last. And doesn’t have to disclose their highest price. They only need to place one bid over the second-highest buyer. Which is often a lot lower. In fact the worse case I’ve seen we shared in this article – where the buyer got it for $123,000 less.
Remember, you want it, have turned up prepared pay $600,000, and you have no way of knowing when other buyers will raise their hand…
So let’s get this underway …
Will anybody pay $610,000?… $609,000… $608,000 … Will anybody pay $607,000 … remember the first buyer to raise their hand gets the property – don’t miss your chance … the property is now available to buy at $606,000 … $605… $604… $603…
At this point the pressure is building … you’re getting nervous … it’s close to what you can pay but if somebody else raises their hand before you – you’ve lost it…
Now, seriously think about this … you want the property and you turned up prepared to pay $600 … when I call out $600 – are you going to raise your hand? Or are you going to take the risk of somebody else beating you to it at $599?
I think most genuine buyers would raise their hand and be happy to get the property they love at the price they were willing to pay.
Now maybe you are a real risk taker – maybe you think you’ll let it keep dropping – but with every drop the chances of another buyer putting their hand up increases …
I’d wager – even if you are the iceman – there’s no way you’ll let get as low as $577.
You see by starting high and reducing it puts the pressure on the highest buyer to offer first – not last – and the seller ends up $20k better off.
Before I give the two big takeaways – let me quickly run one more scenario past you:
Let’s say it’s the same property is for sale – and the same two buyers are competing for it. But this time the property is on the market with an asking price of $590,000.
Again you love it but this time you are competing in a closed envelope multiple offer situation.
At 7 tonight I’m meeting my clients and presenting two offers. I promise that your offer will not be disclosed to anybody other than the sellers. But that means I also cannot ethically tell you what the other buyers offer is. It’s also important for you to understand – you may only get one chance at this. So if you feel it’s the right home for you I suggest you put your best foot forward… That way – If you get it, you’ll be happy and if you miss out, at least you will have given your best shot.
What would you offer? Would you happily offer $10,000 over the asking price to secure it?
I can tell you many buyers do and handled correctly we often get well over asking in these situations
OK – I’ve just given you a couple of scenarios where the best buyers highest price is discovered and the seller ends up with much more than they would have at auction.
So what are the big takeaways?
#1: If you want to end up with the highest price when selling your property – whatever you do – don’t start low.
#2: Never… ever… allow the buyers to see what each other are offering.
Here’s the first episode in this Auction series: Auction Deceptions
If you’d like more in-depth knowledge around how to keep the most from the sale of your property – check out our Home-Sellers Course