How to avoid the public humiliation of losing at an auction.
Bait Pricing: Advertising an item at an unrealistically low price as “bait” to lure customers to a store or selling place.
The market is strong, there is no doubt, and bait pricing by real estate agents is rampant – of this there is even less doubt. As a buyer, to see a property promoted for $1.2 million plus sell for over $1.5 million can be confusing. Is the market really that strong or were you misled?
That’s the question many unsuccessful buyers are asking themselves as they leave auctions defeated and humiliated.
Either way, it’s tough! To spend money on checks and searches on a property that you had no chance of securing stinks. Alternatively, if the market is really paying over $1.5 million for a $1.2 million property, then we are in the biggest boom since Ballarat hit gold in the 1800s.
The reality is, most buyers are bidding at auctions on false pretence. False pretence because the owners have no intention of selling for the price the agent is quoting.
As an example, a property recently sold for $1,515,000 when the reserve price was $1,350,000. Great result. The only problem being buyers were told $1.2 million plus. That’s a whopping 25% between the quote price and the sale price and a huge 12.5% spread between the quote price and the reserve price.
As a buyer venturing into the marketplace, remember this point – the auction system cannot work without bait pricing. Now that dummy bidding is outlawed, bait pricing is the replacement strategy to fuel the auction with multiple bidders.
If your offer on a property is going to be unsuccessful, find out prior to the auction to avoid the humiliation of missing out in front of a crowd. Refuse to play the game. Submit your best and highest offer to the agent and state that you will not be attending the auction. Send a copy of the offer to the vendor’s lawyer to ensure the offer makes it all the way to the vendor.
Just because the owner wants to go to auction, it does not mean you have to. Don’t take the bait.
As a home seller, if you are feeling uncomfortable with an agent promoting your home for a price less than what you are prepared to accept, you should be.