Let me preface this piece by acknowledging that there will be plenty of counterarguments to my impending suggestion, it’s just that in my opinion they’re not very good arguments. 

So, here it is: make it mandatory to advertise the reserve price of a property up for auction. There you have it. Pretty simple…..you’d think.

Here in Melbourne people hoping to buy property are subjected to a senseless milieu dominated by artifice that we call the auction market. 

Let me give you an example of this ridiculousness, a personal one. Having outgrown our current home, my wife and I are looking to buy a house around the area we’ve been living for some time. We’ve had our eye on the market for months; we’ve bid at a couple of auctions, and know (within parameters) the average value of the type of property we want to buy. 

There is a property that we are currently quite interested in (truthfully very interested but I don’t want to give too much away to the agent- wink wink). This property has a price range of $600,000 to $660,000. 

Now, the place is a total dump, but it’s on a good sized block, it’s in a good street, and in a great suburb. This range is total unequivocal b_ _ _t. It is so far below what comparable properties are selling for it would be laughable if it wasn’t so infuriating. This house would have to have been built entirely from asbestos on a burial ground to sell in this range. The agent knows it's rubbish, and anyone that has even the faintest idea of values in the area knows it too.

My wife and I think it’s worth $800,000, and that’s what we’d be prepared to pay for it – more than 20% over the range.  Here’s the catch, we have no idea whether we’re in with a chance at $800k. 

Let me qualify “in with a chance” before you, fair reader, start thinking I don’t understand the point of an auction. Who wins any auction? The person capable of and willing to spend the MOST money (probably some dude the FIRB just charged five grand for the right to bid – am I right?). What do I want to know before going to this auction; is the property actually going to be ‘for SALE’ at a price I can afford? I’m in the industry, I have access to sales data that the general public probably don’t know about, I’ve been watching the market for months and I still don’t know if that is the case with this property.

Now if this were a case in isolation you might just have a laugh, or you might even want to report the agent to Consumer Affairs. Unfortunately this scenario is not the exception, but the rule, and technically, right now, this agent hasn’t necessarily done anything that would warrant disciplinary action from Consumer Affairs. 

Here is guideline number one for agents when advertising property prices from Consumer Affairs Victoria: “When a vendor has given you a selling price, you must not advertise or market the property at less than this price. You must update the advertised or marketed price during the sales campaign to reflect any change in the vendor’s selling price, including the amounts of any offers rejected by the vendor.” 

In my estimation this is the point at which everything goes to hell. The owner has a price they’d love, a price they’d be happy with and a price they’d (maybe begrudgingly) take. So too does the agent. 

But some agents don’t actually want to ask, or even hear the owner’s numbers; they prefer a sort of nebulous indication around a property’s value. Why? So they can advertise the property low and “drum up some interest”. “Quote ‘em low, watch ‘em go” is an unfortunately often used phrase that is truly representative of everything that is wrong with the auction process in Melbourne.  

I find this strategy perverse for a variety of reasons, but two in particular. Firstly what’s the point in having someone at the auction who can’t afford to buy the property? And why on earth would you want to waste those very same people’s time by misrepresenting the value of a property to lure them in. On top of which, bidding at auction is a hugely emotional and nerve racking process for people to undertake. We’ve all seen the bitterly disappointed, the angry and the heartbroken under-bidders slump away after they’ve missed out on a property. 

We’re in a service industry and we treat our customers with near contempt every time one of them comes to a property under the misapprehension they’re in with a chance. 

Now, I’ll refer to the comments section below for asinine and ill-considered justifications for why this tactic works, but the reality is these long term pricing practices have created a ludicrous climate. A climate in which diligent and educated buyers are cluelessly applying an arbitrary price premium of anywhere between five and fifty percent to quoted price ranges. A climate in which buyers rule themselves in or out of contention for properties without actually knowing if they were ever in with that “chance” to purchase. A climate in which every conversation about an auction property begins: 

“How much is it?”

 “Well, it’s on the internet at $XXXXXX but it’s going for way above that.”

The agents that support the “quote ‘em low, watch ‘em go” methodology will tell you it benefits the seller. They’ll recount tales of the time they got X amount over the reserve because of the “pricing strategy” they employed. These agents might even say it’s the only way to get people there – because “if I quote a range around the actual reserve, everyone will think it’s going for much higher”. How crazy is this! Real estate agents in this city have created this lunacy, and the regulators have let them. 

An outstanding real estate coach our agency has a strong affiliation with frequently reminds our sales people: “it only takes two interested buyers to change from a buyer’s market to a sellers’ market”. When a property sells above the reserve price it’s because there was competition. This is a critical component of any agent’s job – finding those buyers who genuinely have the cash to purchase the property and get them competing for it. 

It is my contention that advertising the reserve price of a property will neither positively nor negatively impact the eventual sale price. It is in fact highly likely the same buyer will purchase the property regardless of any advertised price range or reserve. That buyer will likely be bid up to the same level, by the same counter-bidder to the same eventual sale price. 

So then why do it, I hear you ask? Great question: because it’s wrong, because it’s unethical, because it’s unfair, because we’re only reinforcing the perception that real estate agents are shonky and dodgy, because we’re wasting people’s time, because we’re unnecessarily confusing people, because we’re pissing off everyone, because it actually makes the rest of what we do harder.   

This is without question one of the most significant perception issues confronting the real estate industry and agents in Melbourne, doing this could take a big step forward in changing those perceptions for the better.  Our agency is currently consulting with future sellers in the hope of making this a reality.