No more excuses: Publishing the reserve price prior to auction works
GUEST OBSERVATION
On Saturday, I witnessed two auctions that were marketed in two different ways and which resulted in very different outcomes.
The first property was advertised with a fairly typical auction marketing campaign which included the usual underquoting. The price guide that was provided throughout the marketing campaign was $1,050,000. At auction the bidding ran out of steam short of the reserve. The agent came and told me he needed more money to get it on the market as the reserve was $1.25 million. I said, "best of luck as you won't be getting that out of me".
Frustrated the agent went inside to talk to the vendor again before coming back outside to tell me that he had convinced the vendor to reduce the reserve to $1,225,000. He then told the auctioneer and it was called on the market at $1,225,000. No further bids were made and it sold for $25,000 under the vendor’s reserve to us.
Anyone who did detailed research and looked at the comparables would know that the property was worth $1,250,000 to $1,275,000 but the underquoting attracted people with a budget closer to the guide of $1.05 million rather than those with a budget of $1.25 million or more. More than likely many of those people with a budget around the $1.25 million mark were attending auctions that had price guides around that point but reserves and values that were maybe closer to the $1.45 million mark?
The fact is my clients loved the property so much that they gave me a budget of $1,330,000 to spend if needed to secure the property. Yes we purchased the property $105,000 below what my clients were prepared to pay for it which they are very happy about. However they are even happier we purchased it for $50,000 below what the comparables indicated the property was worth up to.
In comparison at the second property auction I attended the vendor had decided to be transparent with the market. Whether he decided to do this of his own accord or read about my petition to make it mandatory to publish reserves and decided to take the idea on board, I don’t know. What I do know is that he was transparent with buyers and attracted bidders who could actually afford the price he wanted for the property. He set and published his reserve at $570,000 and the property sold for $613,000, some $43,000 over the reserve.
The buyer was ushered into the house to sign the contract and so I spoke to the under bidder. I asked her if the publishing of the reserve price influenced her decision to bid on the property. She said she would not have even attended the auction if the reserve price had not been disclosed as she was ‘fed up’ with attending auctions that had reserves set well over the price guide provided by agents.
The bottom line here is that transparency won the day.
Let’s hope it catches on for not only all the vendors’ sake but for all the buyers who keep wasting money and time attending auctions every week where the reserve is set in excess of the guide when in fact they should be one in the same.
If you think my idea of publishing reserves prior to auction is a good move then simply sign my petition which is calling on the NSW state government to make it mandatory for all property auctions to have the reserve price advertised seven days ahead of a scheduled auction.
Feel free to make your comments as to why you signed the petition in the comments box.
Patrick Bright is the founder of Sydney-based buyer’s agency EPS Property Search.
Patrick is the author of four best-selling real estate books known as “The Insider’s Guide to Buying Real Estate Series”.
Visit change.org to sign the petition calling on the NSW state government to make it mandatory for all property auctions.
