Residential property buyers are being pressured into “blind” property sales where key details about pricing and terms are undisclosed in the rush to complete private deals that are replacing public auctions as the most popular method of sales in post-boom real estate markets. 

Buyers’ agents claim “expressions of interest” sales are four times more popular than auctions since the market downturn resulted in falling prices, low bidder turnouts and a dramatic decline in clearance rates.

“It’s like the bad old days when there were dummy bids,” warns Emma Bloom, a consultant with buyers’ agency Morrell and Koren, who claims unscrupulous sellers, or their representatives, can exploit lax rules.

Seller concerns that few, if any, buyers will turn up  to auction are encouraging more to use “expressions of interest”, which involves prospective buyers making offers by a specific time and date.

The rules vary between states, but typically the buyers make their best and final offer in writing, which can include terms and conditions and settlement dates and finance. 

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The real estate agent negotiates individually with prospective buyers to achieve a sale as close to the seller’s price as possible.

 “Auctioneers claim they need to prod would-be buyers like cattle to make a bid at a public auction. It’s a tough market,” says Rich Harvey, president of the Real Estate Buyers’ Agents Association, about the decline of public auctions.

“There is an increase in [non-auction] sales as more and more vendors are reluctant to spend money on advertising and advertising costs,” he says.

Auction clearance rates that were a year ago topping 70 per cent are struggling to crack 50 per cent as exuberant enthusiasm is replaced by irrational pessimism amid a flood of reports that prices will continue to tumble, according to CoreLogic, which monitors prices.  

Agent rules

But this has failed to slow the volume of properties coming on to the market, with more than 330,000 in September. These include big supply increases in Melbourne, where there was a 6 per cent jump for the month and more than 24 per cent for the year, analysis by SQM Research shows.

Advocates of “expressions of interest” claim it improves deal flows by attracting only serious bidders, saves the seller expensive auction costs and avoids hosting hordes of might-be buyers on open days. 

Victorian and NSW rules require agents to provide vendors with a “statement of information” that includes a “reasonable” indicative selling price based on recent comparable sales, the median price for that suburb and details of three comparable property sales within two kilometres of the property in the last six months.

Expressions of interest close on a specified day and time and each potential purchaser needs to submit their best and final offer in writing.

Agents can quote a price range but there cannot be more than 10 per cent between the bottom price and the top price. Some agents, however, get around the requirement by claiming there are no comparable sales.

The seller is not bound to accept the best offer, which means the property can be placed back for another round of “expressions of interest” or as a private treaty sale, which means a general offer to the market.

Bloom claims they are a form of blind auction where the seller controls the sales process and the buyer has little idea of what is going on.

Sellers can advertise a wide price range (despite the rules) or start with “all offers considered”, according to an agent familiar with the process.

Offers can then be played off against each other with the agent telling bidders that the seller has several good offers and that they had “better hurry with a better bid, or miss out”, he says.

If no offer is made, the seller can narrow the advertised price closer to what the seller wants, string along low-ballers, and tell prospective buyers there are several offers around the new price range, he says.

Loan approvals

Harvey recommends buyers avoid being misled by looking for recent comparable sales of between one and three months.

“Agents are hungrier to close deals and will foster a sense of urgency. Buyers need to play the negotiation game very well,” he says.

This includes having finances pre-approved to enable quick response to an offer. Loan approval generally takes longer because of lenders’ tough new rules involving more detailed disclosure of income and expenditure.

Bloom says buyers should prevent sellers, or their agents, from dictate the timing and terms. “Create your own terms,” she says. “If you control the process, you have a good chance of controlling the price.”

Other increasingly popular options include private sales where the agent provides prospective buyers, or their agents, with “ball park” prices and conditions.

They are popular with top-end properties where there are limited numbers of potential buyers, many of whom are known to agents.  The downside is lack of transparency because the buyer cannot see their competition.

Alternatively, board room auctions enable a group of buyers invited by the seller, or agent, to bid for a property, typically in a private room provided by the real estate agent. The transparency might be better but often the deals are not advertised which reduces the number of potential bidders. In a sought-after property, keen bidders can push up the price.

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