Buyers at auction must be alert for ‘under-quoting’ by real estate agents, a leading real estate expert has warned.
Peter O’Malley, author of Real Estate Uncovered, said increasing numbers of agents are providing a ‘bait price’ to lure buyers to auction.
“The bait price is where the agent quotes a low price, probably about 10 to 20 per cent below the vendor's reserve price,” he said.
“Many novice investors think that the bait price is a genuine price guide when it is a nominal figure to suck them into the auction.”
Real estate agents hope to boost attendance numbers and push people to bid above their budget, he explained.
As a result, buyers may waste money on building and pest inspections for a property that is actually out of their price range.
“If you're naive and swallow the agent's bait price, you may spend money on pest and building inspections three or four times just to bid at an auction,” he said.
He warned buyers to avoid becoming ‘auction bunnies’: “The auction bunny is the buyer who shows up to an auction and the maximum price they are capable of paying for the property is below the vendor's reserve price,” he said. “They've just been sucked in to add to the theatre of the process.”
Under-quoting has become “rampant”, Mr O’Malley suggested, since Fair Trading authorities cracked down on dummy bidding.
“To get multiple bidders there in days gone by, agents used to do dummy bidding,” he said, “but dummy bidding is definitely outlawed and is easy to police. Therefore, agents have reverted to bait pricing,” he said.