Why you should always know an agent’s rules

Many buyers ask me whether they should put in an offer prior to the auction to secure a property. My answer is always the same. “It depends. Tell me about the campaign and the agent’s rules” I say.

Sometimes they look a bit surprised, other times they tell me that the agent said the property would be running all the way to auction. And often, this must be the case, but sometimes the agent’s preference to run the property through to auction is based on the ‘level’ that the buyer is talking about and if this is inadequate to meet either the vendor’s reserve or the expectations of the property value. It’s a precarious position for a buyer to be in also, because they risk ‘showing their cards’ and potentially having their budget disclosed to other buyers, yet if they don’t ‘talk’ to the agent at the right price level, they won’t be taken all that seriously as pre-auction purchase contenders.

Private sales and off-markets are a little bit different because an offer needs to materialise for the property to be purchased, however for this type of sale, it is still integral to understand the campaign and the agent’s rules. Different agents deal with competing buyers very differently to each other. There is no formal rule book for how an agent must treat competing buyers, nor is there anything in the legislation (other than the fact that agents are bound to submit any genuine offers to vendors).

The reason why we always try to gain an understanding into the campaign is because it can determine the pace at which we move and the due diligence that we choose to conduct. For example, if the property must be sold at auction (and some sales require a public auction; executor and mortgagee sales to name just two), then our buyers can relax and take their time with the due diligence, provided they are prepared to bid and buy on auction day. However if the property is an off-market with a limited time frame and many competing buyers, we will need to move swiftly in order to avoid further competition or being knocked out of the race altogether by a faster buyer. Our decision to invest financially in building inspections and other due diligence before the offer is put in will be influenced by the type of campaign running. If the agent is anticipating (or has) other unconditional offers already, our buyers are best placed to conduct their inspections prior so that they too can submit a strong and unconditional offer. Many buyers who submit conditional offers in competitive situations often find that the property sells to an unconditional buyer who might have offered a slightly lower offer. Nothing is more heartbreaking, so for this reason we always need to gauge what the campaign requires us to do to be most competitive. If the property is a private sale and no other buyers are making offers, we may have the luxury to place a conditional offer and then outlay due diligence dollars once we know that we aren’t at risk of losing to another buyer.

Also asking about the campaign can uncover some hints or opportunities that can be used to give the buyer an advantage, and potentially create a great win/win. For example, understanding what settlement period is most valued by the vendor, or finding out any little quirky conditions you could offer which would give the vendor some comfort (i.e. A flexible settlement date or an opportunity to leaseback after settlement for a short period) can place your offer in front of another offer if the amounts are similar.

The reason why we ask for the agent’s rules is to understand how the offer will be handled, when our buyer will know whether they’ve been successful, whether there are any other loops to jump through, and most importantly, whether the offer regime is less advantageous than fighting it out at auction. Some agents commit to call every buyer back until the last man stands. This “round robin” approach is appreciated because it enables buyers to know that they were able to fight for the property in a fair fight. The issue that it presents though is without the transparency of an auction, buyers can’t be sure that the ‘other offer’ wasn’t a fabrication. In this seller’s market, agents have little reason to bluff buyers, but it can happen, and certainly in a buyer’s market it is more likely.

The ‘boardroom auction’ method can eliminate buyer concerns about lack of transparency. This well-adopted method in the major cities usually involves a call out to the other interest buyers once an agent has received an acceptable offer on an auction property and buyers are all given around 24 hours to decide whether they wish to fight it out in a simulated auction in the agency boardroom. They can be intimidating for some, but ensure everyone gets a fair go.

Occasionally an agent will take an acceptable offer and without telling other potential buyers, will sell the property then and there. It’s rare though in this climate, as buyers get pretty upset at the thought of being shut out.

The final method which we don’t particularly enjoy as buyers agents is the “best and highest” method, where every buyer is given one opportunity to submit their strongest and highest offer. The issue we have with this style of fight is that a buyer can either hold back a little bit and miss the property for a price they would have been prepared to pay, or they could make an offer which is $50,000 above the next highest offer. It’s a method which is fraught with danger, particularly if lending approvals are tight and in high LVR* territory. The risk is that the bank’s valuer disagrees with the prices paid. (*LVR = Loan to Value Ratio). Before embarking on this type of fight, a buyer should always check in with their broker or bank about their own risk level.

Understanding agent rules is imperative for any buyer who wants to make an educated decision about how they play their cards.