“Sometimes it can be driven by just ego,” he says, describing two cashed-up bidders who last weekend pushed up the price for a Victorian double-fronted house by more than 60 per cent above the initial low range offer of $2.2 million.
“Someone had to win and both just kept on going,” says Mackinnon, who based the offer price on a recent nearby sale. The sale price of $3.57 million shocked many buyers and angered buyers’ agents.
Big auction weekends
Nearly 1400 auctions are planned in Melbourne, around 1000 for Sydney and just over 100 for Brisbane in the third-last selling weekend for the year before the traditional Christmas wind-down.
Some Melbourne agents claim one in three buyers are making pre-auction cash and negotiating improved terms rather than risk being outbid in an emotionally-charged public auction.
But lack of transparency, lax regulation and rampant under-quoting means that many buyers are vulnerable to being played along by the seller and their agents, who are paid by commission based on the final sale prices.
There have also been several recent cases of top-end Melbourne properties failing to sell, despite claims about property shortages.
A recently-renovated four-bedroom, five-bathroom house in Glen Iris, about 13 kilometres south-east of Melbourne, with an estimated price of more than $4 million, failed to sell at a boardroom auction.
The previous weekend four multimillion-dollar Victorian properties failed to attract a bid.
In Sydney, strong buyer sentiment, high clearance rates and a shortage of quality properties is boosting seller confidence, which means many are more willing to take the risk of an auction, says Jacque Parker, a buyers’ agent for House Search Australia. Other Sydney agents claim there has been a sharp pick-up in pre-sale offers.
Don’t be duped
“Flying blind” by pitching a pre-auction offer without understanding the unwritten rules of engagement between real estate agents and their clients can end disastrously.
“They do work if you know how to handle them,” says David Morrell, of buyers’ agent Morrell and Koren.
Morrell recommends buyers deliver a contract of sale to the seller with a cheque or other form of payment, with a warning that the deal expires in 24 hours.
“The earlier you do it, the better,” Morrell says. “If they don’t accept it, then they have to amend the quoting range for other buyers.”
Jarrod McCabe, a director of Wakelin Property Advisory, says many vendors, such as downsizers, are committed to another property and are “quite motivated” to do a deal because of high bridging finance costs.
McCabe encourages buyers to be flexible on the terms of sale, such as offering longer – or shorter – settlement, depending on the seller’s needs, and generally working around their requirements.
“This time of the year, terms can become more important because of the expense and delay of extending finance over Christmas and the January holidays,” says McCabe.
He says pre-auction negotiations form about 20 per cent of his total transactions, which is “high but not abnormal for this time of the year”.
Rules of engagement
He advises potential buyers to alert sellers’ agents that they are interested as a way of preventing a sale without being notified. He also encourages buyers to ask the agent what price they are expecting – without disclosing what they are willing to pay.
In Victoria and NSW, agents provide vendors with a “statement of information” that includes a “reasonable” indicative selling price based on recent comparable sales, the median prices for that suburb and details of three comparable sales within two kilometres of the property over the past six months.
Buyers are encouraged to do their own research by talking with local agents.
Cate Bakos, a buyers’ agent who claims about one in three deals are being completed before auction, urges those considering an offer to remember others are also likely to be bidding.
“A skilled negotiator will not expose their cards by revealing their price,” she says.
In many cases, the next step in the pre-auction sales process might be a boardroom auction, “round robin” or “best and highest” bids.
A boardroom auction allows buyers to meet in a room, typically the real estate agent’s office, and bid against each other.
“It’s not for the faint-hearted,” says Morrell, who claims the advantage is that “everyone goes in with a limit”, which means there is less likely to be an aberrant price.
Bakos says it limits the risk of being bluffed about the number of other bidders or their intentions.
But usual auction rules might not apply, such as cooling-off periods, and sellers might not accept conditional offers, such as making a bid subject to finance, inspection or the buyer selling their existing property.
“Round robins” usually involve an agent communicating between bidders, which puts a premium on the integrity of the agent doing the go-between work.
“Best and highest” are secret ballots where buyers are set the same deadline to submit their top bid. Lack of transparency means the winning bidder might overpay.
McCabe encourages buyers to have completed due diligence before making an offer. That involves having a solicitor check the contract and completing inspections so that any future additional work that needs to be done to the house, such a restumping or renovations, can be factored into the price.