This weekend I bought a house. Not for me, mind you but for some family members. Basically, I became a buyer’s agent.
Our family loved a house but were worried about (a) going over-board and (b) signaling too much interest at the auction. So the idea was to have myself and my partner go instead, try and look like interested buyers and then to bid. They initially wanted us on the phone but I dissuaded them from this as it would (a) possible still allow them to go over-board and (b) signal that we were bidding on their behalf. To do this sort of thing you need to commit.
The first order of business was to discuss how much we could bid up to; their reservation value. This turned out to be a round number like, for example, $860,000 but we decided to go with $862,000 to reduce the likelihood that it tied with another bidder. (That can happen and it happened in an auction for a house I was buying for myself; a story for another time). But I also asked them what they would really be happy paying (to get a sense of how much of stretch this was). The answer was, to continue the example, $800,000. (I am disguising the real numbers here as they are immaterial).
It turned out that they were quoting prices that were just below this value so I was pretty sure that we wouldn’t be doing any real bidding. Surely it would go for more than this and do so quickly. This all made for a fairly relaxing exercise.
Anyhow, the auction started and they extracted a bid of, say, $740,000 from someone on a mobile phone. There was no other bids. I waited. Still no bids. Going once, going twice, third time. I still waited.
The auctioneer went (and they always do this) in for ‘instructions’ from the seller. A few minutes later, they came out with a long talk about how only bidders could negotiate, blah, blah, blad. Still no other bids. Then they announced going once, going twice, third time. I still waited.
Third and final call. I still waited. Going once, going twice, third and final call. Then I bid. The auctioneer was so surprised that he didn’t even see me initially. But there were four other agents to point me out. The auctioneer remarked “I won’t ever ask you to take me to the airport!”
The idea of waiting was so that I could see how many legitimate bidders there was. There was only one other. I bid, say, $760,000. He countered with $780,000 and I immediately countered with $800,000. Then he paused.
I got worried about this. This wasn’t the relaxing event I had been expecting. We were now into ‘stretch’ territory and so each amount was going to be painful. I turned to my partner and whispered whether we should really go on. Do they really want this house that much?
He came back finally with $820,000. I didn’t rush back. Then I suggested $825,000. The auctioneer accepted that. The other bidder countered with $830,000 and I was back immediately with $835,000. $840,000, then I said $845,000 and the other bidder stopped. He would not move anymore. Going once, going twice, third and final call.
Not sold, but passed in to me. We immediately got on the phone. I wasn’t going to negotiate from this point. The real buyers came in. I was able to tell them that there was no other bidder at that price and so they shouldn’t give much. They didn’t. An extra $5000 and they got the house.
I am not sure whether I did anything much except perhaps to soften the sellers to the idea that there were few bidders. The agents had worked out I was bidding for someone before the end but they were not sure who. When they found out, I was able to tell them that they had no more room to go. That might have set the seen for the sellers accepting a small amount more and doing the deal.
I introduced myself to the auctioneer. He had heard my name before but couldn’t work out where. I hadn’t bought or sold anything in that area. I decided not to tell him that the most likely place was in reading the Victorian government report supporting the outlawing of dummy bidding. I authored the economic advice. I also wrote a blog post on this topic.