Navigating the world of real estate auctions in Australia can be a daunting task for buyers and sellers alike.
Understanding the intricacies of an auction campaign may empower participants to make informed decisions and achieve optimal outcomes.
In today’s blog, we delve into the key aspects of an auction campaign in Australia, from the initial planning stages to the big day, and explore the strategies agents use to manage these high-stakes events.
Key Differences Between Auction Campaigns and Private Sale Campaigns
Auction campaigns are characterised by a short, intense marketing period typically spanning 20 to 30 days.
This condensed time frame contrasts with the more flexible duration of private sale campaigns.
During this period, vendors often go all-in, utilising high-end marketing materials, professional staging and sometimes even vacating the property to showcase it in its best light.
The goal is to create a buzz and attract as many potential buyers as possible within a short window.
However, one of the most significant challenges for buyers is navigating the often murky waters of pricing.
Auction campaigns have sometimes involved underquoting, where agents, governed by varying state and territory laws, quote lower than the expected sale price to attract more buyer interest.
The Challenge of Pricing and Underquoting
Real estate agents bear the responsibility of accurately pricing properties based on comparable sales.
In some cases, unique properties can sell for more than their initial expectations, genuinely surprising the real estate agent and the vendor. This particularly occurs in a rising market with hefty buyer competition.
However, some agents have resorted to tactics such as underquoting to generate interest and create a competitive environment where social proof pushes buyers to bid higher than they initially intended.
Underquoting has been a contentious issue, particularly in heated markets where properties often sell for much more than their quoted price. This practice can frustrate buyers who feel misled about what they can afford.
In Victoria, underquoting has made national headlines, with fines exceeding $11,000 and penalties reaching $38,000 if pursued under the Estate Agents Act, as reported by the Real Estate Business website in December 2023.
In the past, agents have been criticized for quoting lower prices to attract a larger pool of buyers, hoping the increased competition would drive up the final sale price.
The Real Estate Institute of Victoria (REIV) has confirmed that these laws compliment the false and misleading representation provisions of the Australian Consumer Law (ACL).
Additionally, Consumer Affairs Victoria has stated, “It is an offence under state and federal law for an estate agent or agents’ representative to mislead or deceive by their conduct or representations,” particularly concerning price.
The Art and Science of Valuing Property
Valuing a property is a mix of art and science. No two properties are identical, and factors like location, condition, and recent comparable sales all play a role in determining value.
Agents rely on both data and experience to estimate a property’s worth, but even experienced valuers can have differing opinions.
The subjectivity in property valuation makes it challenging to regulate underquoting strictly.
Regulatory bodies like Consumer Affairs Victoria and the Office of Fair Trading face the monumental task of policing thousands of auctions, each with its unique circumstances.
The volume and variability in property sales make it difficult to enforce consistent pricing practices.
How Agents Assess Buyer Interest
Agents use various tactics to gauge buyer interest and determine who is a serious contender.
They track buyer interactions through customer relationship management (CRM) systems, noting who has requested contracts, made previous offers, or attended multiple inspections. This data helps agents prioritise potential buyers and tailor their strategies to maximise the final sale price.
Good dialogue with buyers is crucial.
Agents often ask about previous properties the buyer has bid on and their budget to understand their financial capacity. This information helps agents manage vendor expectations and plan their auction strategies effectively.
Handling Pre-Auction Offers
Pre-auction offers can be a strategic move for buyers wanting to avoid the competitive auction day.
However, not all properties can be sold before auction due to legal constraints, such as court-ordered sales or specific conditions in family law situations.
For properties that can be sold pre-auction, agents often prefer to see strong offers that reflect the property’s true value.
Buyers need to demonstrate serious interest and financial capacity to convince the agent and vendor to consider their offer.
Skilled negotiators, like buyer’s agents, can effectively navigate this process, giving their clients an edge.
The Role of Vendor Expectations
Vendors’ expectations play a significant role in auction campaigns. Agents must balance realistic pricing with vendor aspirations to achieve the best outcome.
Sometimes, vendors may have inflated expectations based on an agent’s promise during the listing phase, known as “buying the business.”
In these cases, it’s crucial for vendors to do their due diligence and understand market conditions.
Agents might adjust the quote range during the campaign to attract more buyers or manage the influx of interest. This dynamic process requires constant communication between agents and vendors to align strategies and expectations.
Want to Learn More?
Don’t miss out on this episode where the Property Trio unveil all the ins and outs of auction campaigns, to help you prepare for a successful purchase.
Listen to the Property Trio podcast
Take a listen to these episodes for more in-depth insights on preparing for a property purchase, understanding the laws involved and how to approach interactions with real estate agents.
#20 – Bidding Tactics 101
#29 – Congenial negotiation tactics and how to apply them in the right situation
#77 – Understanding the real estate agent behaviours that buyers don’t like
#102 – How to determine property market values by using comparable sales
#117 – Understanding the real estate agent behaviours that buyers don’t like – Part 2
#133 – Purchasing Laws in Each State: Part 2 – The problems with underquoting and how to solve it
Reach Out to Us for Expert Advice
Understanding the intricacies of auction campaigns from an agent’s perspective can empower buyers and sellers to navigate the process more effectively. By recognising the strategies and challenges involved, participants can make more informed decisions and optimise their outcomes in the property market in the lead up to the auction day.
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