The search for a new family home can be a lengthy, gruelling process. Even more so when it comes to interpreting the rubbery prices agents quote to buyers. Many a buyer has been to an open home recently in the hope that their property search is about to end with the impending purchase. Hearts are broken when the property sells for well above the buyer’s maximum price and well above what the agent advertised. What is really happening in these (very common) instances? Is the market really that strong that a property that is advertised by the agent at “offers over $640,000” can achieve a sale price of $760,000? When the owner chooses the best offer from the multitude of offers that are made, did the owner really get 20% above what they were hoping for? The answer is no.
The answer is the buyers were attracted to the property by “bait pricing”. This scenario played out on the sale of a property in Hobart recently. But it is far from a one off. It is a deliberate tactic to attract multiple bidders to a property. Every week, buyers get their hearts broken and their wallets walloped (if they’ve commissioned a building inspection) as they swallow the bait price that is advertised as “offers over…”.
Why do agents bait price? Well, that is the same as asking, how do you have competition with one buyer?
Agents have turned to bait pricing to ensure they have multiple people interested in a property. Buyers can probably accept isolated instances of a property exceeding everyone’s expectations. But to see it happen every week over the course of their respective property search makes even the most forgiving buyer a tad cynical. Buyers are being used as cannon-fodder in order for the agent to get the property sold.
When fronted by those who lost out, the agents have a long list of “plausible” excuses, sorry reasons as to the anomaly. The same reasons they roll out in defence of the “outstanding result they managed to achieve”. They tell heart broken buyers that the market is rising, we are shocked by the price too, we cannot be blamed for getting a good price, it is market forces at work.
If a seller knowingly allows the agent to market their home at a price point that the owner would not accept, they are as guilty as the agent of bait pricing. Property sellers should also be aware that bait pricing usually attracts buyers who cannot afford your property. Why attract 10 genuine buyers to the home if 9 cannot afford it? Sure, the competition may look spirited to the casual observer, but it is all happening below the seller’s expected price. It would be fairer for the buyers and more prudent for the sellers to disclose the expected price from day 1 of marketing. That way only buyers who can afford to pay the sellers price will make an offer.
Protection for buyers
The best way to protect yourself against bait pricing is to disregard everything the agent tells you and do your own research. Believe nothing, check everything. If the price the agent is quoting seems too good to be true, you are probably right. Compare what homes similar to the one you are inspecting have sold for. Ask agents in the area that do not have the listing what they expect the property to sell for.
If your best offer is above the agent’s price quote and is declined, you will know the agent is bait pricing. Walk away if it is declined by the owner.