What Causes Auction Results to Fly Past the Quoted Range?

Why is it that some properties sail past their quote ranges while others don’t?

Buyers get very frustrated when auction results exceed the quoted range; and justifiably so.

Interested buyers invest emotional energy, precious time and valuable dollars when they shortlist and pursue a suitable property.

Building inspections, solicitor’s review fees and travel costs can make a property pre-purchase adventure quite expensive.

So why is it that some properties sail past their quote ranges while others don’t?

There is not just one possible reason. There are actually three.

1. Whether the industry likes to admit it or not, we do have agents who blatantly underquote

Those who do underquote generally do so because they have a philosophy that they will ‘cast the net out wide and catch more fish’, and then the fish, whose budgets are insufficient, may stretch their budget because they have fallen madly in love with the property.

This does happen, so it’s not a misconception. But it’s unfair on the fish who can’t stretch their budget.

Sometimes agents may underquote because they have been awarded the listing on the basis that they will tell the vendor an optimistic goal price.

The agents who do this will know that they have let the vendor believe that an optimistic price could be achieved. Then they have to be sure the advertised range is at a level buyers will still be interested in, as opposed to a discouragingly high price tag.

“A serious buyer should never invest time and energy into buying a property if they are relying solely on the agent’s quoted price range to set their budget.”

Either way, this is dishonest and unfair…. But it is an industry norm in many parts of Melbourne and experienced buyers know to expect such antics. Agents use the words “Buyers are educated”, and indeed they are.

I have said it before and I’ll say it again; a serious buyer should never invest time and energy into buying a property if they are relying solely on the agent’s quoted price range to set their budget.

All buyers should do their own research (or outsource it) to obtain a more realistic idea of a property’s likely selling price.

One reasonably accurate way to determine what a property might sell for is to look at recent comparable properties in the same area.

The properties being used as comparisons must be on a similar land size, have similar physical features, be of a similar age/era and have sold within the last three months.

In a moving market like the one we find ourselves in now, any data older than three months may not be reliable.

Sometimes a property that is inherently special will attract fierce competition
Photo: Podknox

2. Properties that are scarce and/or special often attract more emotionally competitive buyers than the agent anticipated

Sometimes a property can be inherently special, perhaps more special to two buyers than other mainstream buyers, and it will attract fierce competition that drives up the price.

Examples of such properties may be houses with granny flats behind them – an extended family may have a specific need to buy that particular house. They know it’s rare, they know that the chances of another coming onto the market soon are limited, and they know that they may have to pay a premium to secure it.

“Agents don’t always know how emotional a buyer could be…”

Other examples include iconic properties (i.e. Victorian cottages on favoured streets), large family homes in hard-to-secure school zones and beachfront properties.

I personally purchased a scarce brick Victorian terrace house as our family home and the opportunity was an off-market one. I was relieved because I knew that if the vendors had chosen to go to auction, I may have had some fierce competition for this very reason.

Agents don’t always know how emotional a buyer could be – and we only need two emotionally driven buyers to produce a record-breaking result.

3. Timing and luck

Some properties that are ordinarily not special or scarce can find themselves on the market without other competing properties based on timing and luck.

When this happens, it just means that the buyer pool isn’t adequately diluted by other competing buyers, and a larger pool of buyers may be fighting over the property that is on offer.

“I often say vendors planning on selling… should take advantage of low stock conditions and sell when buyers have little to choose from.”

This is something that buyers should be well aware of – because in the case where a property is swarming with buyers due to low market competition, buyers should take stock of the conditions and consider whether it’s advantageous to wait it out until the market corrects itself and a more balanced array of properties become available.

Winter is notorious for such results – and I often say to vendors planning on selling that they should take advantage of low stock conditions and sell when buyers have little to choose from.

The agents who rampantly underquote are often at fault for broken hearted buyers and their out-of-pocket-expenses, but it’s not always the agent’s fault.

Do your research; not just on comparable sales, but on market forces and comparable stock on market.