How auctioneers get property buyers to offer more money
The auction market in Australia’s biggest capitals has rebounded this spring and buyers are finding it increasingly difficult to purchase properties without paying a premium.
Last week the auction clearance in Sydney hit just under 80 per cent — a mark it has hovered around for much of spring — and Melbourne auctions had a similar success rate.
Home seekers preparing to put in a bid at weekend auctions can improve their chances by knowing some of the key strategies auctioneers use to squeeze higher prices out of potential buyers, property experts said.
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Soho founder and CEO Jonathan Lui said it was important buyers remembered they would be up against emotional bidders.
“Competition is heating up for bidders,” he said. “When buyers start to worry about losing out on the home they want, the bidding can begin to become emotional. That’s when you get unexpectedly high prices.”
Leading auctioneer James Pratt said some of the tactics auctioneers regularly used capitalised on people’s emotions. “Underlying almost every tactic the auctioneer uses is trying to keep the momentum going. You want people bidding with their heart, not their head,” Mr Pratt said.
“If you keep the momentum going, the buyers can get emotional and excited about the auction. They might get competitive. But if you slow things down, there is time for emotions to cool and logic or fear to prevail.”
Mr Pratt shared some of the other key strategies in the arsenal of most auctioneers and how buyers can get around them:
ON THE MARKET
“One tactic is to announce the home onto the market in the right way,” Mr Pratt said. “We always start the bidding below the reserve price. By law, once the bidding reaches the reserve price, you can tell the bidders that fact. That’s what we call announcing the property on the market.
“You have to announce that the bidding has hit the reserve price with urgency. You want to keep the momentum going.
‘As an auctioneer, I want to announce it straight away onto the market. I don’t want any pause to kill the momentum. That’s how you get those bidders who don’t want to miss out, the emotional bidders. At that point, the home can go at any moment, and they want to get their last bids in.”
“When there are not many registered parties, I may talk to a non-registered party or look at them. I want it to feel like there is more demand or interest. If the bidders are all on the left, I might make a note to keep focusing on the right side, so the people bidding feel like there’s interest there.
“Regardless of whether there is one registered bidder in the crowd or 10, a good auctioneer will sell it with the same enthusiasm.”
SILENCE IS GOLDEN
“If there is a pause in the bidding, the auctioneer will try to keep energy up by keeping up the patter. He might resell the home by reminding everyone about its most attractive features.
“The auctioneer does not want there to be silence. For bidders, silence is golden. It sucks the energy out of the auction and discourages other bidders. That gives you a chance to prevail.”
“Another auctioneer trick to keep an auction going when the bidding has slowed is to ask for lower increments. The auctioneer might even drop down to increments of $1000 or even $500. Even in those amounts, the money will be valuable to the vendor, and it keeps more bidders in the auction.
“I might say this, ‘We’re on the market at $3 million. First, second, third call. I’ll tell you what. I’ll take a rise of just $1000 to bring you in. Or, I’ll take a rise of $500 to bring you in.’ I’m going to keep going around until I get every last $500 for the vendor.”
IT’S NOT OVER TIL IT’S OVER
“The auctioneer will say, ‘First call, second call, third call,’ to stimulate more bids. But he can say ‘Third call’ as many times as he likes. The auction is not over until I drop the hammer.”
“Good active bidding will buy the home, while lower increments only encourage more bidders to join in. If someone else is bidding in $10,000 rises, offer $20,000. That will make other bidders hesitate.
“Set the tone with a high bid. When the auctioneer says, ‘Opening bid. Where do we go?’ and the price guide is $3-3.3 million, instead of trying to start at $2.6 million or $2.7 million, I’d start straight away at $3 million or $3.1 million. You want to knock out as many of those bidders as you can.
“The auctioneer wants lots of bidders in the action to build up the emotion and the fear of missing out. But the bidder wants as little competition as possible so they can get the property without overpaying.”