How to manage Selling Agents who underquote

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Agents who quote very low do so in order to disrupt a competitor’s auction or private sale. They do it to bring potential buyers to their property instead of them going to another. If 2 similar properties were going to auction, with similar attributes, land size etc and if they are worth about $600k, with one quoted $500k – $550k and the other quoted $450k – $490k then it is unlikely that anyone would pay over $550k for either until they have looked at the property that is quoted lower.

What is worse is if the lower quote is going to auction after the higher quoted property. It is extremely difficult to get any buyers to commit to a purchase of above $550k before the lower quoted property sells. In this way the lower quoted auction that goes later will ruin the campaign of the other seller and get all the potential purchasers to his or her auction first.

So what does the first selling agent do – He quotes lower and it gets to the stage of the ridiculous. And that is the current market that the public is facing in Melbourne. Most properties are not selling for ridiculous prices. In fact only a couple per week out of a thousand auctions make headline reading in papers and on blogs. All the rest of the properties sell for what they should sell for. Albeit massively underquoted from the agent.

If a property is worth $750k and it is quoted at $500 – $550k and sells at $740k this is not an outstanding result of $200k over reserve. It is actually a poor result yet a headline in the paper makes people think differently. What is a property worth? The legal definition is “The amount that would have been paid for the property if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer after reasonable advertising”.

For current buyers who want to try to buy on their own, I would suggest HOMEWORK. You need to go to as many open for inspections as you can get to. You need to listen to what the agent is quoting for that property and then you need to go to all the auctions in the area you are wanting to buy in. You need to look at how many bidders are at the auctions for properties in your price range and also in your type of property even if it is outside your price range. You need to understand that many people will buy something less than they can afford and then spend money on the house to make it the way they want.

You need to make notes on the correlation between the quote price and the sold range. And not just for one property. You will need to look at least 15 or 20 to get a feel for the agents quoting ranges. Please note every individual area is different. Even the same agent will quote differently in different suburbs. Once you get a feel for the area then start looking at the individual auctioneers. You need to understand the differences in their style of auctioneering.

Now you have started to get a feel for the area and the players it is time to look at property value.
If you are looking for a house you need to start with land size, the position of the block in reference to schools, shops, public transport, parks, commercial areas, higher density residential developments and other special areas such as beaches or forests.

Then look at the house that is on the block.Start with number of bedrooms and bathrooms and then look at number of living zones, number of car spots and whether these are open, car port or garage.
Then we look at quality of fixtures and fittings and whether this is new, recently renovated or original. Is the floor plan conducive to easily change, or is it already an excellent floor plan. What is the house made of and what are the foundations like. Is the ceiling heights average for the type of property you are looking at or are they low? You need to take all of these attributes into consideration in order to get an idea of what your competition will be like and to what level you will need to bid or offer.

Now that is the easy part. It is strictly leg work and massively time consuming. Now you need to start working out whether to make an offer during the auction campaign. When can you make a legally binding offer? What are your legal rights when making an offer. Do you make an offer or wait for the auction. If you make an offer and it is rejected by the agent, you may have tipped your hand, but if you make a strong offer that is enough to stop the auction, how do you make sure that nobody goes over your offer.

Each one of these steps needs to be covered every time you are considering a property. Any mistakes will cost you thousands or tens of thousands of dollars if you do not have the knowledge or diligence to make good decisions. If you are spending over $2M then it can make hundreds of thousands of dollars difference.

If you can do all this yourself and you are extremely confident in negotiation with a seasoned expert then the current market shouldn’t hold any fears for you. If not, consider hiring a professional buyers agent to assist you. The fee you pay them will easily save you a lot more than you pay them.

If you would like a no obligation appointment please call our office on 9773 8404 or email [email protected]

Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.