In today’s show Patrick Bright, from EPS Property Search, joins us with some timely tips on buying at auction and, in particular, ways to make sure you don’t pay too much.
Kevin: We talk about it from time to time, but buying at auction is both exciting and also can be a very good way to buy a property; it’s certainly a good way to sell one. What are some of the tips if you are going to an auction this weekend, and you’re a bit concerned that you may pay a little bit too much?
Let’s talk to Patrick Bright from EPS Property Search; they’re buyer’s agents in Sydney. I guess this is something you do quite often, Patrick, is it?
Patrick: Yes, it is.
Kevin: I’ve asked you to put together some tips for our listeners on what they should be doing if they’re in fact going to go and buy. What would you suggest?
Patrick: If you’re going to go buy at auction, the first thing to do is essentially work out your finances so you know what your preapproval limit is and obviously don’t go above that, so you’re not looking at properties that you can’t afford. Then you have to look at the value of the property and assess the value, so you can make an informed decision.
You shouldn’t go to an auction thinking that other people that have done research and if you just pay $1000 or $5000 more than they do, then you have a good deal. A lot of people do go to an auction thinking that, and if you have a couple of unaware, uninformed buyers outbidding each other, that’s where silly prices can be paid.
Kevin: Just talking about the price for a minute, Patrick, you mentioned about doing your homework and so on. How much notice can you take of what an agent tells you? We’ve heard a lot about price ranging and low-balling and so on. What would be your advice there?
Patrick: Yes, it happens. The problem with under-quoting particularly in the Sydney and Melbourne markets… I think now, with the changes of law in Queensland, that you’ll probably eradicate the under-quoting problem; you’re forced now to do research, whereas in Sydney and Melbourne, people are a bit lazy, and they take the agent’s guidance. Sometimes you just don’t know whether you have to add 5%, 10%, 20%, or 30% – and I’ve seen many agents under-quote by more – so you need to do your research.
You really have to treat every property like it hasn’t got a price and do your own research, so you’re not influenced by that – as in led up the garden path by paying too much – or coming to the auction without enough money in your back pocket to be a serious contender.
Kevin: Do you think it’s a good idea to have a professional valuation done?
Patrick: They can certainly help. If you want to get a valuation done, that will certainly help take a bit of emotion out of it. But you also have to understand that in a rising market you’re going to have to add some money to that valuation, because the valuer is going to be pricing that up based on historical sales over the past few months, maybe even three to six months back. In a rising market, where we’ve seen markets sometimes lifting by 3% to 5% in a quarter, you’re going to have to factor that in.
Kevin: As a buyer at an auction, you’re going into a scenario where the odds are pretty well stacked against you, aren’t they? The agent is working for the seller; you’d assume, too, the auctioneer is also working for the seller. So you really do have to do your homework and know that you’re on a firm footing when you start to bid.
Patrick: Very good point, Kevin. You are essentially on your own when you’re going into buying any property, because unless you have a buyer’s agent or an advocate representing you, you are essentially on your own. Everyone else in the transaction is working for the seller’s best interest, so you certainly have to have your wits about you.
Kevin: It’s certainly made the buyer’s agent a lot more important in this scenario. As we’ve come to realize, agents can’t work on both sides; they technically have to work for the seller. No wonder that buyer’s agents have become so popular.
Patrick: Yes, they are becoming more popular. I think it’s becoming more normalized. It’s been around in the US for 30-plus years. In Europe, it’s quite common. It’s been in Australia probably about 15 years now, and it’s starting to really catch on, in particular over the last five years.
It makes sense. You don’t have a lawyer representing the buyer and the seller in the same transaction, so why would you have an agent representing the buyer and the seller in the same transaction? It does make sense.
Just as a good, quality sales agent can have a great influence on the sale of a property over and above what other sales agents or even the vendor would get themselves, the same thing can happen with a buyer’s agent. If you get a good buyer’s agent, they can certainly have an influence on the outcome for you.
Kevin: If you talk to an American agent, to them it’s totally foreign that they would actually work on behalf of both parties, and I wonder therefore why traditional agents tend to want to hang on to both sides of the transactions. Do you think it’s because it gives them a little bit more control of the negotiation?
Patrick: Yes, some sales agents don’t like buyer’s agents because they can’t control them as much and they don’t have as much influence over them. I know that does frustrate some. But at the end of the day, a lot of the sales agents do use it. I’ve helped three sales agents in the last six months buy their homes. I get a lot of them as clients, because they can see the value that we add when we’re buying from them, and they think, “Gee, I would like to have that on my side. I’m working most weekends selling stuff, so I barely have time to look myself anyway.”
Kevin: It’s crazy when you think of it, because agents do actually earn their commission out of the seller, not out of the buyer, so you’d think they’d be more than willing to give up that side of the business that actually earns them no money.
Patrick: Yes. At the end of the day, they either deal with two parties – as in managing the buyer and managing the seller – to try and get the transaction together, or they actually just focus on working with their sellers. I think the experienced agents – the majority of them – are certainly in favor of working with a professional on the other side. They’re very happy to do it. But as I said, there are some out there who are a bit fearful about it because they don’t like not being able to pull the wool over buyers’ eyes.
Kevin: It’s certainly a changing environment, that’s for sure. Mate, we’re out of time, but I want to thank you for giving us your time.
Patrick Bright, who is a buyer’s agent. He’s from EPS Property Search; they’re based in Sydney. Thanks for your time; we’ll catch you again soon.
Patrick: Pleasure. Thanks, Kevin.