Auction FOMO

I have always believed auctions to be a useful method of selling property, livestock, anything, on an “up” market, where demand exceeds demand.

The principle is simple. In modern language the agent takes advantage of buyer’s FOMO, or “fear of missing out”, to push bidding as high as possible. A captive audience is created, and everyone wants to go home with a prize.

I’ve been to plenty of cattle sales where we’ve bought three-quarters of a truckload of weaners at the right price, only to pay above our intended rate to get the truck filled. A captive market.

Conversely, when the market hits a tougher time, I’ve been able to fill up at great value. This time, the captive market is made up of the vendors who have brought their stock in. They’ve got buyers, just not enough of them to create FOMO. Still, their weaners are rarely passed in and taken back home, are they? The FOMO is transferred to the vendor.

But the auction has done its job. It’s got the stock sold, even if the seller is disappointed.

So too, it is in the property market.

There have been strong auction results (just as there have been strong private treaty results) over the past 18 months and before. If and when the market plateaus, who will be the captive market at the auction? It’s simple: it will be the vendor.

Picture this: the vendor will be hyped up for the auction. The bidding gets underway but then slows before expectations are reached. There’s a pause in proceedings to build some FOMO in the captive audience – this time, the vendor. “We’ve got a buyer here and now, you don’t want to miss them, we can lock them in”, is the mantra from the agent. The vendor meets the market.

But the auction has done its job. It’s got the property sold, even if the seller is disappointed.

Another role of an auction is to exonerate the selling agent of an undesirable result. “It was the market”. Agents can remain uncommitted as to an estimated sale price, preferring to “let the market do the talking”.

In the example above, there is no way of knowing whether the buyer would have been prepared to pay a higher price. I know of at least one recent sale where the successful purchaser later said they were prepared to pay more than they had to. A private treaty negotiation may take longer, but a good agent should be able to get a buyer to put their best foot forward, even if there is only one buyer at the table.

Additionally, a negotiation that includes subtle nuances to terms such as settlement timeframes, early access, included or excluded plant and equipment, ability for vendor to leave some plant on site for a period, or anything else you can think of may be of great benefit to the sale.

Private treaty requires the agent to be as accurate as possible in estimating a realistic sale price. This gives vendors reassurance of the value of their property.

I reiterate, auctions certainly have their place. But as a market tide turns for a particular item, it is wise to keep in mind who the captive market becomes, who catches FOMO from the process. When it’s the vendor, the auction may do its job in so much as it gets the property sold, but not to the best advantage of the vendor.

So, it’s horses for courses; but mark my words. The purpose of an auction is to create FOMO to force a sale. But it won’t always be buyers in the FOMO hot seat.

I fully expect to cop flack from other agents for this article.

To discuss how MacDougall Rural Property can help you buy or sell rural property in New England and beyond, please give me a call. It would be a privilege to give you a hand in achieving your goals.

Best regards,

Graham MacDougall