Don't show your hand too soon

Just because we’re in a buyer’s market, with some great opportunities to buy good properties well, don’t think that means you have the upper hand when it comes to bidding at auction.

Many first-time buyers think an auction is a matter of turning up and “winging it”. But when you are bidding on a home, you are not just competing against other buyers. You are also bidding against the agent, whose job is to maximise the selling price for his client. You will often be up against a collective brains trust of three or four, and the agents will probably know who you are, what you have already bid on and what you’re likely to do at the auction.

And lately we have been seeing too many examples where buyers are making it especially easy for skilled agents to do their job.

 Take this scenario we witnessed a couple of weekends ago, which highlighted what a skilled agent can do even in a buyer’s market when presented with an inexperienced and overenthusiastic buyer.

 The house was a lovely little single-fronted at 48 Emo Road, MAP Architecture, in one of my favourite family and investment areas, the Ardrie Park precinct. The property was middle of the road in terms of quality, with plenty of space inside and outside and good flow. The agent  was Peter Bennison of Marshall White, a seasoned operator who showed his stripes and his skills to perfection on this particular day.

The house had been quoted at a very reasonable $890,000 to $950,000, so even Peter was a little shocked when a strong and emotional opening bid came in at $950,000. The rest of the 100-strong crowd seemed stunned into silence as Peter tried, with no avail, to elicit further rises of $10,000.

Repairing inside for a strategic half-time break to consult with the no doubt ecstatic vendor, Peter returned to tell the crowd that the property would be passed in to the highest bidder if there were no further bids. After a pause, a second bidder piped up with an extra $10,000. Back like a shot, eagerness written all over his face, the original bidder responded with a crowd-hushing $1 million.

 No one else was prepared to go any higher than that one, so the bidder was taken inside to negotiate a final price with the vendor. A few minutes later a final result of $1.15 million was declared.

 How did that happen? Why didn’t the bidder ask outside whether the property was “on the market” (over the vendor’s reserve price)? If he had, the final negotiation would have happened out there on the pavement instead of inside. Maybe the price would have gotten up to $1,150,000 anyway – who knows? At least it would have happened openly and transparently, which is what auctions are good for. But the bidder had made his enthusiasm so completely clear that the agent was able to play him like a violin.

I don’t want to be critical of the bidder. There are worse “sins” in home buying than paying more than you need to for a good house. But this scenario does point to some things to keep in mind if you are bidding on a property yourself.

1) As a bidder, by all means look strong to ward off other nervous buyers. But it doesn’t help to look emotional – an experienced agent will pick up on that, and it will cost you money

2) In this market you have to test every step of the way. Ask questions. There was nothing wrong with the opening bid, but the winning bidder’s second bid should have been presented in a very different way. The post-auction problems snowballed from this one decision.

3) In this market, when your bid is well above the quote and there is no proven competition, why rush up the pole? If you have to pay more, at least let it take a few hours of testing.

4) Consider getting professional help.

 The result of the Malvern East auction might have been no different if a professional were managing the buying side. But I think a number of safety procedures could have been implemented before the buyer agreed to that amount.

 It’s a great market to buy in, but you still need to be careful.

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million. Mal writes weekly auction reports, advice and in-depth market analysis on James' website.