False Price Strategies
False price strategies include both the ‘offers above’ method (illegal in some states) and any of the price-range strategies. There are many variations of these strategies: ‘offers from $500,000-plus’, ‘offers above’, ‘offers between’, price range or even price indication. All variations work on the assumption that the owner may not accept the lowest price quoted but will consider a figure above this amount.
In 2016, New South Wales passed laws prohibiting the use of the ‘offers above’ or any similar method, with Victoria following suit in the same year.
This legislation was enacted to protect buyers from investing time, money and energy into a property they can’t afford. By advertising a price lower than market value with ‘offers above’, buyers are encouraged to enquire. However, being far below what the seller will accept makes this advertised price false and misleading. Many buyers have lost money believing an advertised price.
As of the beginning of 2018, all other states still permit this form of marketing. However, even in New South Wales and Victoria, the legislation was not designed to protect the seller against an inflated price suggested by a real estate agent.
As with all pricing methods that don’t use a stated asking price, the focus of the buyer and the hopes of the seller diverge. The buyer expected a bargain, while the seller is encouraged to use this method in the hope that there is no cap on an eventual selling price.
This strategy sounds plausible to a seller, but it’s deceptive and has hidden dangers that cost you money without you even realising it.
No-Price Strategies
‘No-price’ strategies include ‘for sale by negotiation’, ‘for sale by tender’ and ‘auction’. Most real estate advertising websites also offer a ‘contact agent’ option.
The effect of no price marketing on buyer enquiry is heavily influenced by market conditions.
In a stable or falling market where supply outstrips demand, enquiry is generally lower with no price marketing. If a potential buyer enquires, inspects the property and decides to make an offer, it is seldom at or above market value. The lack of advertised price legitimises any low offer made.
However, in rising market conditions the effect on enquiry is minimal. Conditions that force buyers to compete for property, such as the booming market seen in Sydney and Melbourne in recent years, oblige buyers to move quickly and enquire on any suitable property regardless of advertising method.
While agents often claim credit, it is the increased demand in the market that is driving the enquiry levels, rather than the lack of an advertised price.
Prior to advertising a listed price, some agents are successfully using a brief exploration period with no price. With a trusted agent, and under the right market conditions, this can work well and has parallels to the heart buyer search.
However, most no-price strategies are built on the premise of using one of the two lies to inflate the estimated selling price at the listing, then educating the seller down on price. All no-price strategies are particularly susceptible to the online marketing and pricing deception.
Public Auction – Sellers
Public auction is the most deceptive method used to sell property in Australia.
For the agent, public auctions are all about advertising revenue and personal profile. Public auctions are promoted widely throughout the real estate industry and major media organisations. You can’t have a public auction without the significant spend that accompanies it – namely the vendor-paid marketing campaign.
The media’s attitude towards public auction was revealed in a capital city daily. The headline ran ‘Auction Results’ and reported 117 sales. However, of the 117 sales reported only six were sold at auction, three before and one after auction day, while the remaining were sold by private treaty. With public auctions, the deception is universal.
Public auctions are sold to the real estate consumer as a transparent system of sale. Each buyer gets to compare their bid to those of opposing bidders and is given the option of raising their bid, providing the opportunity to be the highest bidder and eventual buyer. It appears as though the seller gets competitive bidding by all buyers.
However, does the reality of a public auction meet the sales pitch? Is it a transparent system? Does the seller get competitive bidding?
No.
For starters, the public auction system uses comparative bidding, not competitive bidding.
Here’s an example of competitive bidding so you can see the difference between the two…
Example:
When auctioning, the credits for its Direct Action Plan (which was its alternative to the opposition’s carbon tax) in 2013, the federal government didn’t use the public auction system of ‘transparent bids’. It used a private auction system. Each bid from a potential buyer was kept private, with no comparisons allowed between buyers.
That meant each bidder had to submit their highest offer. Some business interests accused the government of a lack of transparency, but it was fair to the seller. Rather than comparing bids, they had to compete fairly, maximising the price of the seller, in this case the Australian taxpayer. Transparency for the buyer does not always generate the best outcome for the seller.
In a real estate transaction, the much- touted transparency of a public auction will only ever benefit the buyer, and even then, only on auction day. By having the capacity to compare bids, the eventual buyer will rarely pay their maximum. They simply pay one bid more than the second highest bidder to become the successful buyer. Thus, the seller rarely achieves a sale at the highest price.
Source: Andrew Trim, Author of Real Estate Dangers