The Psychology of Auctions
You think you’ve got your emotions in check. Perhaps you’re thinking about wearing dark sunglasses to the auction and you’ve practiced your arms folded, only raise of the index finger bidding technique. You’re as cool as James Bond in the famous poker scene in Casino Royal, with 007 in a game of bluffs and double buffs – “In poker you never play your hand. You play the man across from you.” James Bond
However, are you at risk of suffering from the ‘endowment effect’? It’s a discouraging name given to a psychological trait studied in behavioural science for what drives us in our pursuit or protection of possessions. Simply explained, the ‘endowment effect’ is a prejudice that occurs when we overvalue something that we own. This can relate to property auctions when we overvalue the state of ownership and ‘winning’ at an auction to our own financial detriment: i.e. bidding beyond our reserve. Related psychological tendencies are known as ‘auction fever’ and ‘social facilitation’, auction fever being the general outcome of social facilitation which is an inclination to act differently when in the view of others and compete more or copy the actions of others. Understanding the psychology of property auctions is key to coming out on top without bidding beyond what you can afford.
Interrupting the rhythm Auctions and auctioneers thrive on rhythm. A great auctioneer is like a conductor of an orchestra and is able to control the flow of an auction with verbal and body language. Rhythm in auctions is most famously used to trigger that endowment effect and speak to bidders’ emotions rather than their heads, beckoning them to bid for the win and not for the house. At Your Australian Property we advise that purchasers need to research a property’s true value before auction so they can be stress free and confident on auction day to help control the auction’s flow.
The solution is to understand the true value of the property and be emotionally invested. It is then easy to decide the maximum price you are willing to go to. Bidders need to use the rhythm of an auction to their advantage to beat out other early bidders quickly, intimidate latecomers and stop an auctioneer’s attempt to control the flow of the auction. The auctioneer will quickly identify you as a main player in the auction if you know how to manipulate the rhythm in the auction, as your very actions and presence will impact their ability to control the rhythm the way they want to.
Reversing the norm There are various ways to upset expectations at an auction. Most expectations are for an auction to have slow, periodic bids that move eventually to smaller, quickly exchanged bids until the winning bid is announced. Use this to your advantage by reversing these expectations. A well-known auction technique is to assess the interest in the property on the day and if there are a number of clearly interested parties, use high bids at the start to remove these bidders early on and assert your presence as the main bidder. Increments for increasing a bid are often in whole numbers. You can try to interrupt the flow of an auction as it nears the end by offering an uneven number that requires the auctioneer to quickly do the sums.
Portraying confidence Property auctions are often mainly silent and reserved events, at least for those in the crowd. It is accepted as respectful and reasonable that those viewing with no intention of bidding make little sound at an auction, especially any kind of noise that could be conceived as a bid. The leader is seen as the auctioneer, the only person who talks, with the vendor invisible within the property and bidders raising a hand to bid suggesting a calm attitude. Counteract this tendency by being as vocal and loud as the auctioneer. They have practiced that voice dozens if not hundreds of times. Very rarely will an auctioneer expect a bidder to speak with the same volume as they do, but why not? Ask if the property is on the market confidently and make your bids known. Throw the rhythm off with odd numbered bids and make sure everyone knows you are in the crowd. Of course, don’t be rude or obnoxious nor should you obstruct the auctioneer’s ability to do their job. However, being audibly and visibly present is a seldom practiced strategy that resists the usual psychological approach bidders take to auctions. Often there are great buying opportunities or even bargains available at Auction.
The team at Your Australian Property know the psychology selling agents’ use and the tricks of other purchasers to intimidate amateur bidders who are emotionally involved. With over 30 plus years’ experience in the Melbourne property market, our Professional Auction Bidders have saved our happy clients’ many tens and hundreds of thousands of dollars by planning a strategy and knowing the right moves at Auction.
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