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Silent Auctions

Discussion in 'Real Estate' started by Jacque, 27th May, 2009.

  1. Jacque

    Jacque Team InvestEd

    16th Jun, 2005
    The auction before the auction.... all hush hush, so to speak. I'm coming across a few agents using these lately to sell and they can be either effective or not. For those of you who are unfamiliar with how they work, let me explain:

    Seller decides to sell and is swayed by a REA who says they'll advertise it as an AUCTION and see if they can't sell it prior, for the vendors best price. Vendor agrees :)
    Buyers come along and express interest (more than 1 is required :D). They ask agent if vendor will sell prior. Agent replies in the affirmative and encourages offers. Buyers 1,2,3 etc are all told the same thing ie: "Vendors will sell prior and we have several interested parties. We strongly recommend you put your very best offer forward (at a price that you'll be happy to walk away from a la Jenman style :D) as the vendors will be making a decision today/tomorrow/within 48hrs"

    Buyers all dash off to talk to their lenders, solicitors etc and return with their offers. Agent presents all offers to the seller and seller decides on one, or gets agent to return to do it all over again (playing buyers off against one another to fetch a higher amount) until one party is the eventual "winner". Everyone is happy, especially the agent, as they've cut short the selling process :) Happy days...
    However, if there's lots of interest and the agent is sure that all buyers will be sticking it out at auction, he'll encourage the buyers to auction instead. It does depend on timeline, with some agencies bringing auction dates forward so as not to lose the buyers.

    Plus sides...Buying prior to auction can work, IF you have a limit, stick to it, and ensure you are very prepared to walk away if the seller refuses your offer. If not, then you've just wasted your time and have given the agent your highest bid at the upcoming auction. With pre-offers, you need to make it crystal clear to the agent that the seller has a limited amount of time to accept your offer, after which time it's withdrawn and you may or may not be at the auction in 1/2/3 weeks time. The seller then has to decide whether or not to take the risk of accepting your higher price now or waiting to see what other buyers will offer or bid up to on auction day. It can be a nerve-wracking experience for vendors too, as buyers can be extremely fickle creatures (just ask me!) and change their minds very quickly or cool off on the property. Your offer also needs to be as unconditional as possible, to be as attractive to the vendor as at auction.

    However, if you know/observe that there will be a large amount of interest at an upcoming auction and your accepted offer is fair and based on evidence and DD that demonstrates a realistic purchase price, then you can also outsmart the other buyers that are taking a chance and waiting at auction time to reveal their top dollar by buying beforehand.

    If you consider the interest so-so, let the agent know that yes you're very interested in buying the property, but don't want to get involved in a silent auction beforehand and reveal your top dollar, so would prefer to bid at the auction instead. If they press you for price, let them know that you'd like to be kept informed if it appears that it will sell prior and make a decision then. It also pays to let the vendors know this directly (or via their solicitor) so that they are fully aware of ALL interested parties, not just the ones the agent is pursuing to sell beforehand.

    And a word about price guides- there are still many agents underquoting or with ridiculous ranges of over 10% eg $500K+ (with an actual written estimate of $580-620). The most important estimate you need is the one that the agent put on the listing agreement with the buyer. Most of them won't reveal it, but some do, so there's no harm in asking...
    Besides this, researched buyers will know the true value of the property regardless, especially if they've compared recent sales in the area and have been actively looking.

    I'd love to hear from anyone with their stories of auctions (silent or otherwise) or property stories in general, for a series of articles I'm writing. All names naturally will be kept anonymous.