Auction mind games
Auctions can be unnerving. There is so much going on and potential home buyers’ adrenalin is pumping — no matter how cool, calm and collected they think they will be.
Economists and other academics study auctions. The psychology in the auction room plays an important role in the process.
It’s not only the psychology employed by other bidders against you. There is also psychology going on from the auctioneer’s standpoint. It’s something they learn and trade on, and it’s the reason most people know someone who bid more at auction than they promised themselves.
It’s a tough job being an auctioneer. They have to be composed, understand the subtle tenor of the room, count fast, track bidders whether they’re in front of them or on the phone, and be a bit of a stand-up comedian.
Their job of getting buyers primed begins before the auction.
Then, on the day, the auctioneer uses psychology to subtly orchestrate how buyers think and behave. They are trained in when to speed up the auction to build energy and excitement and pump up the bidders, or when to slow down the pace to give bidders time to think. They can spot a nervous bidder and may respond with more time. They don’t want you psyched out and the auction to fizzle.
Typically auctioneers start low to suck potential buyers in, so that potential buyers don’t give up before they start. In an auction, several people bidding can make the house all the more appealing to other bidders even though that’s not logical. That’s why auctioneers might start the bidding with a vendor bid to at least get it going.
They use psychology to convince buyers on the side lines to join in sooner rather than later. And once you do, they convince you that if you don’t bid higher you’ll lose the property of your dreams. So you abandon all logic and your plan.
Auctioneers can tell from your body language what sort of bidder you’re going to be and even what you might do next. They use narrative about the property and auction process to keep you biding.
One moment they’re your best friend and the next moment they pit you against ‘the man in the blue T-shirt’ driving you to be more competitive. It illuminates the risk of losing.
Auctioneers can use cognitive biases such as “anchoring”, which is setting a price that you anchor on. They may tell you that properties such as this are selling for a certain amount, even if in reality they’re selling for less. But you anchor on that number and think you’re getting a bargain.
Then at the end they will usually give buyers an inordinate amount of time before the hammer comes down in the hope of another bid. They’re banking on the fact that you’ve already bought that property in your mind and what would another $500 or $1000 matter to beat that creep in the corner who’s bidding against you.