The other day a client asked me to bid at an Auction on her behalf, so she could buy a property she was interested in.
A lot of people assume that since I’m an Auctioneer I understand what is happening at an auction better than they might. There is probably an expectation that other auctioneers and real estate agents will treat me with a degree of professional respect and not play games. That doesn’t happen. Having been to plenty of Auctions and bid on peoples’ behalf I’ve learnt that auctions can be confusing, but not because of any complexity. More than often a lot of little mistakes are made by a lot of people and that confusion makes and outsider suspect a conspiracy. There is a reasoning strategy called Halon’s razor. It says: ‘Never attribute to malice that which is adequately explained by stupidity’.
I am being harsh, though I do want to make the point that if you are buying through auction, don’t be too quick to judge people’s intentions. Its bad management that’s generally the issue. Let me pull back the curtain and show you what is really going on at a lot of auctions.
Firstly, think of an auction like a game of chess with each party being a different piece. Each has a different role in the game and different abilities.
May I introduce the Auctioneer.
An auctioneer is like the King on a Chess board. In many ways they are the focus in the game, but he has a crippling weakness in that they can only move one space at a time. The title makes them seem so powerful but, everyone else on their team must do the hard work to produce a win. Auctioneers are exactly like that. They announce the bids, but they are other peoples’ bids. They can reject bids but can’t make people bid. An auctioneer can easily intimidate buyers and make them feel uncomfortable, angry or frustrated.
However, there are very good auctioneers who understand this and do a lot of things to make themselves appear non-threatening. They are friendly, they smile and use wit and humour subtly to engage people. They prefer to take things slowly and avoid standing in high positions or in spots which force buyers to occupy spaces that make them feel exposed. In fact, good Auctioneers focus 80% of their efforts making people feel relaxed.
If the auctioneer is the King, the listing sales agent is the Queen.
Watch them closely. Listing agents have an incredible amount of power. By the time the auction starts, 95% of that power has been spent, it is now a question as to whether it’s been used well or poorly. The listing agent oversees the most important part of the game, finding people who like the property and holding onto them until auction day. As they work with each buyer the listing agent can make each buyer feel safe and comfortable with the idea of buying the home, the process of the Auction and their expectations as to what they may have to pay. If buyers believe the agent favours another buyer perhaps because the agent doesn’t return their phone calls or is evasive when answering questions, they will read more into those interactions than they should. What is usually poor organisation and follow through by an agent is interpreted as avoidance and favouritism by a buyer. In some instances, buyers who would have happily bought the property cross it off their list thinking the agent is against them. More often the truth is the agent doesn’t know the answers and won’t admit it.
The result of this is that all the impressions and suspicions the sales person has created in the buyers’ minds come home to roost during the actual running of the auction. While the auctioneer is forced to stand in one spot, imploring people to bid, the listing agent has the freedom to move amongst the various bidders and talk to them directly.
Now let’s look at the most important group of players, the Registered Bidders.
Having overcome all the obstacles unintentionally put in their way by sales people, the registered bidders turn up to the auction, each with their own game plan. Some buyers won’t bid until all the other bidders are nearly out of the running; some plan to start as low as they can in the belief that the lower an auction starts, the lower it will finish; there are those that plan to bid in $1000 increments against whoever else is bidding with the idea of wearing or slowing them down. The auctioneer and sales agent have plans of their own. They know what the reserve is, they think they know what the market values is, and they have a preference as to where they would like to see the auction bidding start and where they think the auction will run up to.
Now of everything the parties think they know, most are assumptions. They can guess where someone might start bidding, they might suspect what a buyer might pay but until the auction is run they really don’t know. Trouble is a lot think they do know and that makes them ridge and inflexible. German military strategist Helmuth von Moltke said, “No battle plan survives contact with the enemy.” He was not saying that plans are useless. He was making that point that when reality and the plan clash, you shouldn’t get angry with reality, you should modify the plan.
Now for the actual auction.
The Auctioneer starts the auction by giving his introduction, preamble and description. For those that don’t know, the preamble is the speech an auctioneer gives at the beginning of an auction that runs through the property contract and the declaration about the rules of sale by auction. The description is about how beautiful the property is.
Here’s the truth about what is happening while an Auctioneer is doing the preamble and description. No one is listening! The sales agents aren’t listening, they are too anxious about who is going to bid, where their buyers are standing and most importantly, who has not turned up. The buyers aren’t listening, totally consumed thinking what they will bid and how they need to look like they know what they are doing. And the neighbours, well they might be listening, but they are far more interested in seeing what happens when it gets underway. After all, if this property can get $X, mine must be worth at least $Y. That sums up the nature of the crowd, a whole lot of assumptions, a fair bit of anxiety and a lot of plans that conflict with each other. What could possibly go wrong?
The Auctioneer calls for an opening bid. Most buyers prefer the auction to start low, so they can see who is interested. The auctioneer wants it to start high because he thinks that if it starts low, it will take ages to get up to reserve and he has another auction booked across town after this one. The vendors want it to start high because that feels safest and the listing agent wants it to start somewhere in the middle because they promised the owners that they would get a great price and they don’t want a high bid to kill the competition. Someone calls out a low bid and the auctioneer rejects in. The bidder feels confused and angry, they think ‘my plan was …. and you are stopping me’. No one else wants to be embarrassed by being publicly rejected so the other bidders hold back. What would have been better was the auctioneer to take the bid. I learned this rule of thumb very early on in my auction training. Buyers generally prefer to start an auction at about 75% of market value. If the property is worth $1.6 mill, the opening bidder will want to start at $1.2. Most auctioneers will reject the bid and want the buyer to start at $1.4. What do buyers do with that information? Withhold their bids. The auctioneer wanted things to be quick and instead they have turned it into a log jam.
The best rule I know is to let bidders bid how they want to. The competition is between them and the other bidders, not the auctioneer, not the vendors.
The Auctioneer is now forced to implore people to bid, the buyers are standing with arms crossed and sales people are just standing there looking useless. The sales person must then step up and talk to people and get them going again. Good agents walk around the crowd. They ask people to bid. People respond with the usual responses ‘we’ll see’, ‘not yet’, ‘later’ and ‘I’m not really interested’ (Oh sure, you have come to the auction, registered and brought your cheque book but you aren’t interested. You really want me to believe that!!!) Finally, the agent gets someone to bid, the Auctioneer accepts it and the agent is off trying to get someone else to bid.
Auctions are like any group behaviour. Restaurants that have lots of people in them are believed to be better than restaurants that have very few. It’s called social proof. It is an incredibly strong influence pattern that affects our judgement about a lot of things. People may be there to compete for the property, but every buyer subconsciously believes that every other buyer knows what he/she is doing. If there are multiple people bidding, the property is a better purchase than if only one person is bidding. Worse, the thought is if no one is bidding, there must be something wrong. With an auction, there is always social proof influencing everyone’s thinking. It’s just a question of whether the agent is managing it, or if it is managing the agent.
Running auctions is about keeping things simple and not over managing things. Good sales people focus on collecting people who like the home, being honest about what they know or don’t know and being prompt in their dealings. They let the auction identify the best buyer rather than play favourites or feel the need to pick winners. Good auctioneers understand that the auction is an unfamiliar experience to most buyers and plays his part to help them feel relaxed. Rather than trying to corral and herd them, he lets them explore their way.
There is a financial difference between a good auction and a bad one.
With a well-run auction, it’s a lot tougher to get property cheaply. If I’m biding for a client, I must make big bids and make them fast if I have any chance of getting the property a bit cheaper. With a badly run auction, it’s a lot safer to stand back and let people who should know better trip themselves up.
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