Welcome to the private sales club
Welcome to the new world. Well, not so new – it arrives every winter in Melbourne, when the favourite weekend sport that is the public auction quietens down and a version of the Melbourne Club opens for the million-dollar-plus home buying business. For four months between a certain royal’s birthday and a hoped-for Collingwood victory on grand final day, auctions diminish as the favoured way to do business at the top end – and private sales, off-markets and expressions of interest take over.
For unwary buyers, private sales can present some problems. In fact, a number of potential buyers start out on the back foot with private sale negotiations simply because they think they are easier than auction bidding.
We are not sure why anyone would think private sales are necessarily easier to negotiate than auctions. Sure, some private sales are straightforward enough: it’s simply a matter of paying the asking price. But it’s worth realising that private sales have no rules like the ones they have to read out at the start of an auction. There is no start and stop time and no bells to say the property is “on the market”. For casual buyers there is no public confirmation of the right price level in the form of other bidders, as in an auction.
As well, over the last few years the curious practice of not stating a price has crept in on some private sales. So when you ask a salesman the price, the response can vary from: “Make us an offer” to “Buyer interest is at $3 million and the vendor wants around $3.35 million (we think)” to “Price range, sir, is between $1.8 million and $1.92 million”.
Even the inexperienced buyer should be able to see the dangers in being asked to “make us an offer” – especially if the buyer wants to buy the home. There are solutions for a buyer involved in this process, but hand on heart you as a buyer would be best served by getting professional representation in this instance.
In the case of the other two price types that are a version of the range, it’s just as confusing. Could you buy the property simply by paying the top end of the range? That depends on the process and on which agent you’re dealing with.
This leads us to the second traffic stopper in private sale negotiations: the process. Even if you offer top dollar, your offer may still be referred to others, and that involves a 24-hour feedback process during which time you may be asked if you have any more (even if there is no other offer). Or you could be asked to participate in a boardroom auction, which involves a new set of rules. Or you could simply be told nothing – which could mean it is sold to someone else, maybe because as a negotiation tactic your offer had a clause stating this was your final offer and they believed you and didn’t refer back to you.
Even if your offer of the top price in the range is accepted on the spot, you may wonder whether you did the right thing.
Each and every agency you deal with has a different private sale process, and in fact a number of agents within different agencies use different private sale practices.
Which brings us to the final issue of agents – whom do you actually speak to? In some companies you could be involved with a number of agents during the buying process – but only two of them can actually help you. In private sales in Melbourne’s top-end it is a club, it works well for buyers and sellers, and a lot of real estate is exchanged, however you need to know who’s who within the club if you want to get the result you want.
When you go to your next open for inspection, for instance, does that well-dressed agent you spoke to actually know what is going on? Is he the listing agent, who has the ear and trust of the vendor – or is he someone so far removed from the process that you probably know more about the home and what it takes to buy it?
So welcome Melbourne, welcome to the winter of wonderment and the intensely interesting private sale process.
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.