The role of social proof in auctions

The role of ‘social proof’ in auctions

It wasn’t long ago that we were watching homebuyers in Victoria racing to get the first bid in at property auctions. Many took this approach in an effort to be seen to be getting on the front foot in a highly competitive market.

More recently, however, a cooling of demand in the face of the rise in interest rates and the slight correction in prices has seen many buyers holding back at the start of an auction, reluctant to get the bidding under way.

One of the reasons behind the reluctance to start the bidding is the desire among buyers to see what is known as ‘social proof’. This is the desire among buyers to see other people trying to buy the same property, a form of confirmation that this is a desirable property worth bidding for. Of course, if all of the buyers are looking for the same signal, and therefore avoiding making the opening bid, this can be quite a challenge for the auctioneer.

Some home buyers feel that if the property is passed in after no bidding, they will have the upper hand in any post-auction negotiations. The other side of the equation, however, is that in order to have the first right to negotiate after the auction, you need to have the property passed in on your bid, so not bidding at all can make this difficult!

In recent months we have attended several auctions where bidders have been reluctant to show their hand, to the extent that the property was about to be passed in on a ‘vendor bid’. But the placement of one bid then leads to others, resulting in a competitive auction that exceeded the vendors’ reserves.

In this environment it is important to have a bidding strategy that is focused at achieving your property goals, which is one more reason that having an experienced and objective Advocate to bid on your behalf can make such a big difference on auction day.

If you would like to discuss how the team at Ian Reid Buyer and Vendor Advocates can assist you in your property dealings, whether you are buying, selling or both, why not give us a call on 9430 0000 this week to discuss your options?

You’ll also find lots of helpful suggestions for property sellers in our free booklet, “Fatal Real Estate Traps Exposed”.