What happens when the price is not right? 22/04/13

I came across an interesting scenario on the weekend while I was out attending auctions that had to do with the suggested purchase price of a home and the actual vendor’s reserve. It wasn’t a straight forward case of underquoting, but if it walks like a duck and it quacks like a duck….. Allow me to explain.

It was a beautiful 3 bedroom home in the Northern suburbs of Melbourne that we attended on Saturday with friends who were looking to buy. The place had been fully renovated and was immaculate in appearance. We are talking the best home in the street here. There really wasn’t much else any prospective purchaser could do to add value to the place.

The area is still pretty realistic in value for your real estate dollar at the moment, and there were sales of homes of a similar size for $350,000 to $380,000, however these were nowhere near the standard of what was being offered really. The friends of mine who were looking had been through the property a couple of times, and on both occasions the agent had suggested a “mid to late $300’s” range. In fact the he mentioned that most of the interest had been in this range. Now without being a mind reader you could still draw a picture that the estimate would be sub $400,000 as a sale price based on the competition.

The funny thing though was there was no quote range on any of the advertising. Nothing you could actually pin an accusation of direction on. Everything related to price was verbal.

So the auction began with a genuine bid at $305,000 and the auctioneer would only take bids of $20,000 from that point. When it stalled at around the  $340,000 mark the auctioneer went in to seek advice from the vendors, only to come back out and suggest that bids of $20,000 was all they would take. From that point on the auction deteriorated into a bit of a farce. People were bidding $1000 lots and $5000 lots but the agent flatly refused and would only take $20,000 bids.  It got to around the mid $300’s as suggested and was then passed in. From there it got fun.

The highest bidder was offered the opportunity to negotiate but when he found out the vendors reserve he blew up and stormed off. That left two other interested parties to enquire about making the purchase. When they were told the vendors’ reserve was at $450,000 the amount of verbal abuse that followed was passionate to say the least! Threats of dragging the agency name through the mud and reporting them for misrepresentation were rife. I though one elder Greek man was going to take a swing at the auctioneer personally. Those guys couldn’t get out of there quick enough.

Pretty exciting all round, and a great show in emotion over sense, but what do you expect? Real estate is sold by plucking at the emotional heart strings of potential buyers. You attempt to have them emotionally invest in a purchase, in a property specifically and tie a whole dream and way of life in to that emotional investment. Then these guys told them they couldn’t afford it on the day because they were wrong about what the seller wanted, by $100,000! If you play with people’s emotions expect an emotional response.

I’m not going to go into the whole “underquoting” scenario here, however as an agent representing a vendor, is it not in the vendors best interest to know that their intended sale price is $100,000 over market before they spend a few thousand in advertising and a few weeks in opens? If they still wanted to proceed, then baiting prospective purchasers with a low ”interest” range and expecting them to spend 20% more than they have on auction day is a little foolhardy. Tactics like that may even get you beaten up by an old Greek man!

Ahh the games people play. As always negotiate strong but fair and have fun.

Garry McPherson

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