What happens when the property passes in to you?

So if you are interested in buying particularly in the bigger cities of Melbourne and Sydney, chances are for the good properties you are going to have to go to auctions to purchase them. And for a lot of people, they really don’t like the auction process. It’s scary and it’s in that public speaking environment but what happens if the property passes in to you at one of these auctions? That’s going to test you because if you think it’s tough in that environment when everyone is looking at you in the auction, it’s even tougher when you have to walk inside and negotiate with the real estate agent so you really need to know what to do if that happens.

The first thing that I would suggest to anyone is that they need to stand their ground. Now the real estate agent is going to take you from the front of the property and get you as far away from the front of the property as they possibly can because they don’t want you to see who’s outside. They will actually use that as leverage against you in the negotiation. They are going to say, “Hey look, if you don’t agree to this price, we are going to pass it to the people at the front who is happy to negotiate after the auction as well.” And if you can’t see them, you might be boxing in shadows. So what I would normally do is one of two things. I would usually stay in the front room where I can still see out the window, and can see what’s at the front or the very least, I’ll go to someone and have them outside so I can call them if needed be. So this is the kind of things that you need to think about if the auction actually does pass in to you because they want to put you into this highly emotional, highly intimidating process, and you would need to know how to position yourself best for those circumstances.

Once you’ve done that, the very next thing you need to do is straight away determine your reserve price. You need to know when to let’s say; it’s passed in for $700,000 and you know the vendor’s reserve price is $750,000. You’re not that far away. But if the reserve price is $850,000, you know you are in for a bit of a battle because you are a $150,000 away. So it’s crucial to assess that reserve straight away.

Ater that, this is when preparation becomes key because my next thing is you need to be able to assess that price against the market quickly. What would you get in a low competition environment, what would you get in a high competition environment and have a view on where that sits. Now, if you just happen to turn up in an auction and start bidding, and you don’t have any of those background research done, you are in trouble because the real estate agent is going to see you coming. And so, once you’ve done that, you go ok.. the reserve price is $850,000 for example, you can have an understanding that, “Ok, in the last few weeks there has been a few sales on the range of $830,000 – $840,000 so it’s quite reasonable.” or “This is totally out of the ballpark” because you know after doing your research that this should be around the $780,000 – $790,000 and so you need to know where that is because that would be very helpful in your negotiation.

The next thing is to let the games begin. Because it’s all about the negotiation that is about to happen.

So once the reserve is known, I always go, “WOW!” or “Pfft! That’s a big number.” We need to send a message to the agent that that is miles away because we need to give our negotiation position some strength. And I guess the other thing to remember is you don’t need to negotiate in increments that are equal to the other person. By that for example, let’s say there is $700,000 out the front, and they’ve said $850,000 and you come back and do $760,000 and then they come back and drop $30,000, you don’t need to come up $30,000. You just come up $10,000 or $5,000 if you like. So it’s not about matching or mirroring the agent regarding what they are offering. It’s about negotiating the best outcome for you and always remember that in the back of the agent mind, their biggest negotiation tool is to meet half way. So if you want to pay a certain price, always have in mind when you are doing these increments where does meeting halfway actually leaves you? If it leaves you over of what you want to pay, it’s going to take you a bit of time to get the deal done.

The last thing I sort of want to think about is if you remember that 90% of the communication is done through non-verbal language. Eye contact, body language and you got to be able to read that, and that is what the agent is relying on. They are reading your body language. When I’m bidding at auction, and I’m up against someone, I’m always looking at their body language. What are they saying, are they getting a bit fidgety, are they giving me any clues whether or not they are getting close to their upper limit and that is what the agent is doing to you. So you need to be aware of that. Don’t give away too much with your body language and your eye contact. It’s like what Kenny Rogers said with his song, “You got to know when to hold them, you got to know when to fold them, got to know when to walk and got to know when to run.” So it’s important that you have that sort of bluff capability.

My conclusion is very simple. If you got a property that’s actually passed in to you at auction, how good is your poker face? Because if you think it’s really difficult when you are bidding outside in a group, I can tell you that it gets ramped up when there are a few agents that are there, trying to pressure you to get the best price they possibly can for their client. So if you are in that situation, it’s always better to have someone on hand that can help you or even better if you are thinking about buying a property at auction, it’s always good to have professional in your corner. The real estate agent will then deal with a buyers agent who’s been in that situation hundreds of time before, and they won’t let any of their body languages give anything away and get the best outcome for you on that property that just got passed in.