I'm Jeremy Sheepard. >> And I'm Daniel. >> We use data to expose deceitful property experts and their marketing BS. >> This is the expert busting series. >> Welcome to episode 9 of the expert busting series, knockout bids, why they don't win auctions. Let's jump in.
>> Yeah. So, you've probably heard a uh self-proclaimed expert uh talk about mastering the art of the knockout bid. And it's just a marketing gimmick. It doesn't work. In fact, it's more likely going to cost you thousands. And we'll explain what the knockout bid is and why it's a bad idea.
Okay. Yeah. So, the knockout bid is a tactic supposedly used by expert auction bidders to knock their competitors out of the auction with a big radical bid. And I've sometimes heard this referred to as a slam bid. So, instead of raising the price by small increments of say one or $2,000, it's a sudden jump of say 10, 15, $20,000. In the case of a million-doll property, it might be in the hundreds of thousands.
Now, the theory behind this is that the competition will feel intimidated. Uh, and I've heard one professional put it this way. You want to give the uh perception that you have an endless supply of money that the person will just give up. Uh so it's not until you have a close think about how this is going to work that you realize uh that it doesn't and is probably more likely going to cost you if your buyers agent uses the knockout bid. >> So the idea would be let's say you're going to auction or even an online auction. Let's say it's at 550 and then the agent calls up going oh there's going to be a knockout bid or a knockout bid of >> the auction the the agent this is during the auction.
You can actually have like an example would be recently I heard an online auction in these online auctions. There was a property in Darwin online auction. The agent calls me up and goes, "Oh, they're going to put a massive bid in maybe you know you start with a it was at 550. It was going to go up to 580 and then I was going to go maybe what 552 or 553 just slow increments but he goes like why would I put it in at 552 553 if the 580 is coming? That's not going to stop that knockout bid from coming. It's coming anyway." So, I'll just hold off and see what happens cuz the agent could have been playing me.
>> Yeah. Yeah. There's there's lots of gimmicks. It's it's ridiculous. But let's let's go through uh put yourself in this situation. You're going to auction.
Okay. So, say you've you've found a property you like. You've been to a couple of these open inspections. Uh you've given it a lot of thought, perhaps discussed it with your partner. Uh and you've both agreed you want to buy this property. Now, you get a building inspection done.
You get a pest inspection done. You've had a conveyancer go over the title. You've arranged finance. Maybe even got an independent valuation. So, the point is you've gone to a lot of trouble in preparation for this auction. So, it's not a small thing.
Uh it's a big deal. Not just because of the price, just because of the trouble that you've gone to in in preparation. So, you're probably uh nervous that all this time uh hasn't been a waste. And uh fingers crossed. Hope you win this auction. So, let's go through the next slide and see where this knockout bid comes in.
All right, so picture yourself in the following circumstance. The auctions this weekend. You've got a budget of 550,000. You're hoping the property will sell for around that mark, ideally for less, but you never know. Uh, now imagine a professional turns up to the auction, probably a buyer agent. They've discussed this opportunity with their client.
They they plan, let's assume they plan to pay no more than 550,000, same budget as you've got. But of course, you don't know this and they don't know your budget. Now, the professional has marketed themselves as an expert at auctions. And one of their tricks is to make this knockout bid. And the bidding starts at, you can see there, $490,000. and it goes up by $5,000 increments until it reaches $510,000.
And this is when the expert jumps in with their knockout bid and in a big loud strong confident voice they say 530,000. So they've jumped forward by 20,000 instead of by the uh 5,000 increments that we've been seeing. Now, you're standing there, maybe sitting, and you've seen they're a serious buyer. They appear to have a lot of money, so you may as well pack up and go home. Doesn't really make any sense, does it? Like, what's your budget?
>> 550. Where's it at? >> 530. >> 530. But they've put in a knockout bid, so they've knocked you out. Uh, yeah.
It just doesn't make any sense, does it? Why would anyone in your position walk away? You've spent weeks arranging finance. You've visited the property maybe a couple of times. You've paid for a building and pest inspection. You got into a lot of trouble.
You've had a sleepless night last night. And the price right now is below your budget. M. >> So, are you telling me that someone in your position is going to or any anyone in this position is just going to walk away because this professional who's got this trick up their sleeve, who's used a knockout bid, they've jumped up by 20,000, now you're just going to give up. >> I mean, where is the logic behind this thing? So, I don't believe that that is a serious consideration for a normal human being.
Um, now maybe a monkey, but monkeys aren't in the habit of buying properties. Um, so the knockout bid, um, yeah, it I don't think it's turned anyone away really. So why would anyone just give up? Uh, nobody's going to walk away in this sort of circumstance. So if you go to the next slide, D, >> this one over here. Is this the one we're looking at?
>> Sorry. Uh, >> walk through it. >> Yeah, this one. Yeah. Okay. So, why not just bid an extra $2,000 on top of the knockout bid?
So, the knockout bid is $530,000. >> You can just go 532. It's still well within your budget. I mean, if you get it for 532, that's that's fantastic. So, what impact at this point did the knockout bid have exactly? I mean, in this case, it had absolutely no impact at all.
you just kept bidding because it's under your budget. Uh in fact, you've still got plenty of room to breathe. You're still in this. Okay. So, the knockout bid had no impact because it was less than your budget. Now, if you go to the next slide, >> well, I'd just like to point out there is like why do it?
Why go for that knockout bid? Is it just to to try and show authority? Hey, I'm the tough guy in the room. I'm going to go to 530. >> The theory behind it is you've got so much money. uh you've you've gotten impatient with these $5,000 bids.
>> Let's [clears throat] get to $700,000 quickly. Let's do this big big jump up. But of course, this this guy's just bluffing. He's only got the same budget as you've got, 550,000. All right. So maybe the bidding goes up by uh smaller increments uh from there from your last bid of 532 and it goes all the way up to 540,000.
>> And this is when they come in with their second knockout bid and it's a jump of 10,000 this time up from 540 to 550. Okay. So they they are right at their limit. You don't know that, of course. Uh, but you're right at your limit, too. So, uh, and they they don't know that.
So, if you really can't go any further, you have to decline all other invitations from the auctioneer uh, to go any higher. That's it. You're out. Maybe you could stretch and you could go a little bit further, but let's just assume 550, which is the absolute top stretch. So, the expert auction bidder has has won this property, and they'll go back to their client. They'll congratulate them.
Um, I got the property for you. It's right on your budget of 550,000. Um, and they'll say the knockout bid worked. But the thing is, how come the second knockout bid worked, but the first one didn't work? The the first one was a bigger knockout bid. It was 20,000.
How come that didn't work? How come it didn't knock out? The reason why the first one didn't work is because it was less than your budget. >> Correct? >> It's the budget that's important. It's not the knockout bid.
They just happened to end on your budget of 550,000. So, let's rewind the auction and assume now that your limit was only 540,000, not 550. Um, so let's rewind and go through the last steps again with your new maximum of of 540K. Okay. So if you go to the uh next slide, right? Yeah.
So your last bid is 540K. The expert could have responded with 542K and won the auction, but that's not an that's not a knockout bid. instead they didn't know how much money you had and they decided to use the knockout bid uh and they would so they're not going to do 542. They've gone five straight to 550. So they only needed to bid 542 to win the auction but they tried another knockout bid and they cost their client an extra 8,000 needlessly by not going up in small increments. the professional has actually cost their client more than the minimum price required to win uh the auction.
Of course, they don't know that. So, they go back to their client and say, "Hey, I did this knockout bid and I got you the property. I won it for you. The knockout bid worked. My tricks work because I'm a a professional and it's just a a bunch of malarkey." And knockout bids can be very costly. >> Very costly.
>> Yeah. So, it's possible they'll never actually save any money at all. They may be more likely to cost more. And on top of that, you got to pay uh the fee for this buyer's agent who's got this fantastic trick up their sleeve, this so-called trick. So, where did this trick come from? Uh imagine you are just hang on a second.
Yeah. Imagine you're one of those buyers agents >> and you're trying to promote yourself, trying to market yourself as um you need me. So, someone has gone to an auction, they've lost. They've gone to another auction, they've lost. They've spent their money on building and pest inspections and so on. And someone you hear on the interweb is purporting to have this uh particular skill where they can win auctions with this trick, this knockout bid.
So, all you have to do is pay them this money and they can get you your your golden home, your the home of your dreams. But it's really just selling false hope because as you can see, it's it's not really uh going to win. So, it's really just a a marketing trick, a marketing gimmick. Um, and someone else uses the same gimmick to promote their skills as well. before you know it, this propagates and we've got this um uh myth to bust in in the community. >> I think the the big thing is it's like if they do promote this knockout bid or they do an article on it, it's just them trying to promote themselves why they're better than everyone else.
Because you think of it, what's the difference between all the buyers agencies? They do the same thing, don't they? >> Yeah. >> To me, it's a matter of who's the best performing, like what are they like what data points are they looking at? Just to note um that people aren't if you're not aware you can't have two on the same bid. So like let's say the experts at 550 they've put that bid in first.
So they've got that right to that property. You can't have you can't go oh I match that 550. You got to go above >> Yeah. >> above that. >> Yeah. Next bid has to >> So if you got in first potentially at let's say that 550 if you went in those 2k increments and you were the first one to that 550 they might call quits and you might have got the property.
So, if you got the same limit, it's um Yeah. Have you got that little bit extra? >> Yeah. And if you went for that little bit extra, maybe they'd try another knockout bid. Like in the example, 540 was your limit. You went at 542.
>> They put in the knockout bid and they've spent more than they needed to. >> But in a scenario like this, you would think, okay, well, it's 550. More than likely, you think that's where their their max the experts max might be. So, if you went to 551, they might just let it go. >> Yeah. Yeah.
You don't know. You don't know. But but if you just Yeah, if you keep incrementing, you get eventually going to get to uh their limit. >> So, >> all right. So, yeah, I I'm assuming Yeah. So, first of all, there's professionals out there that are preying on people who have missed out at auction.
Um uh selling this false hope that they have this this gimmick, this trick. Uh, and I will bet a lot of them will push back when they watch this video and they will say, "Jeremy, I've I've used this. I've seen it work." In that example we just gave, >> they believe that it worked, but it didn't. They just came to the limit of 540 of the other bidder. They went past it by $10,000. So, they think it was the knockout bid.
But in order to know that this actually works, there are three specific things that you need to um to have come true. Okay. So, the first is that the winning bid was a knockout bid. And I don't know how much you've got to bid by, but it's not incremental. It's got to be uh a knockout bid, a large increment. And secondly, a knocked out bidder.
So someone who missed out, who didn't go further, they disclosed their budget to you. That is their their maximum bid. Yeah. How high they were planning to go. And then assuming we can believe them, the third thing is uh their budget, their maximum was actually higher than the knockout bid. So you need those three things to be true.
So in other words, the bidder who missed out left money on the table. They could afford to counter the knockout bid, but for some reason they didn't. >> Uh and that's the only circumstance in which an expert can say that the knockout bid worked. So in the example we gave previously, they believe the knockout bid worked because they won the auction, but it didn't work. They could have won by just going 543. It's not winning the auction.
Winning the auction is not proof it worked. Winning with a knockout bid is not proof it worked. The knockout bid must be lower than another bid's budget, their maximum. Uh so if you win the auction simply because the knockout bid uh exceeded the budget of all the other biders, then that is not an indication that the knockout bid worked. uh because you could have got an amount exceeding the other biders incrementally. Uh you didn't have to do the knockout bid.
>> So to make it simple, it's just like who's got the higher budget wins. That's as simple as it gets. >> That is exactly >> there's no special formula. There's no like oh I'm scared cuz they put that 30,000 watch out. It's a matter of Yeah. >> Did you pass their budget?
Yeah. Now I have explained these three points to buyers agents. And I've said, "These three points have to come true in order for you to be able to say your knockout bid worked." And they've gone straight back and said, "Jeremy, I've seen it work. I put in a knockout bid and I won the auction." And I said, "Did you know the maximum the budget of the other bidder?" And they'll say, "Well, no, I didn't know that." So, how do you know the knockout bid worked? >> I think this is where it's important to be flexible. To me, I always look at it from a numbers perspective, probability.
So, let's say um you go to these auctions and your tactic is this knockout bid. How many times has it won? If you've done this 20 times and it's worked three times, but you're going around saying, "Oh, it works. It's fantastic." Well, I would argue the fact cuz your probability is only what, 15%. >> Yeah. Yeah.
How many of those uh occasions did you Well, yeah. How many did you exceed your >> limit >> uh your >> spend more than you needed to for your client? >> Cuz that would be frustrating. Let's say you put this knockout bid, but you could have got it for 20,000 or $25,000 lower. Why not go up in those increments? It might cost you an extra 10 minutes of your time.
But that's the that's the thing. So actually, so have you had push back on this? So you've argued. >> So you talk to any buyers agent that >> give me an example like where's an example you've had a lot of push back that you can vividly? I've I've asked did you know the other the bidder that you knocked out did you know their limit and what they say >> no how can I didn't know they did I didn't talk to them I just won the auction >> so what's the argument then >> yeah they believe they've won with the knockout bid >> very very interesting they've yeah they most probably they've collected their revenue ticket next >> yeah and imagine they do consult with the other bidder so there's two biders left they do the knockout bid they in and then later they're chatting with that that other bidder. Um, I noticed you you gave up after I put in that knockout bid.
Um, can I ask what your your maximum was? Now, put yourself in the shoes of that person. So, it let's say with our example, it's 550,000. Yeah. I just thought um when you put in that bid for 530,000 that you were just going to keep going and I had a I had 550 up my sleeve, but I just um I just, you know, are they going are they going to really say you tricked me with your Jedi mind powers? >> It's like poker.
It's like poker. You do the bluff and you say, "Okay, you going to call it or not? You going to go a little bit more aggressive?" And this person has turned up after building inspection, pest inspection, finance arranged conveyance. They've been thinking about they've been dreaming about it. They are not going to back out. I was at one auction once.
>> Um and people were just there were there were half a dozen biders and they were just on top of each other. As soon as one person bid, the other one put in another bid and another bid. And there's a person standing beside me. And they could I could see they were itching to put a bid in. Like, have you got to jump in? Why don't you just wait until it stopped and then put in your bid?
They could see it coming up to their max and then they quickly jumped in with with an amount. I can't remember was it was like 20 years ago, something like 360,000 or whatever. But yeah, nobody's going to just go home after um the bid hasn't even got to their maximum and giving up. >> And I'd be very interested to hear what the reasoning was behind someone. >> Oh, this is good. That >> the more nons the more nonsense auction advice.
So, where are you going with this one? >> Yeah. So, here's some more silly advice I've heard from fake experts. >> Um, arrive early, at least half an hour. So, I copied this one verbatim from a post by a fake expert. They gave no explanation as to how getting there early would help in any way.
Uh if I turn up late, just before the final third and final call, and I put in a bid that's bigger than the the last bid, then I'll win. Even if I'm late, it's just nonsense. >> So, arrive early, at least half an hour before. Survey the landscape, see who's there, find out who the competition is. Oh, this is a good one. Dress smartly and portray confidence.
Stand front and center and let people know that you are there to bid. Start with a strong bid and make your last as strong as your first. Ah, wear the sunglasses so other biders can't read you. [laughter] >> I think you're joking. Did someone actually write this? >> Yeah.
Yeah. So, if you bid, uh, they can read you. They know how much you've bid. But what what is the read? Uh, what are you trying to read there? Turn up late in an expensive car so everyone sees you.
>> This one I think is really funny when you look at the first one. >> Arrive early. Turn up late in an expensive car. >> Yeah, I I think if you turn up late, you might not have parking. >> You might have to walk a couple of blocks just to get there. >> Do a couple laps.
Just let everyone know that you're there. Hey, I'm here. >> You know the um you know what you wear. like you can turn up wearing a pair of shorts and a t-shirt and some Crocs. Uh biggest win is the biggest bid wins the auction. So there's auctions have been designed structured in such a way where if you the person with the most money the biggest win biggest bid wins and none of these tricks are going to do anything for you.
What's the one stand front and center and let people know that you are there to bid? I mean, I think if you make a bid, they know you're there to bid. If you stand in the way of everyone, what what does it do? Like, where does all this come from? I'm picturing some people who are depressed because they've been to an auction and they've missed out. They've gone to all this trouble and they've missed out.
They've done it again and they've missed out. And so, there's a hope that there's someone out there who has a trick. And this is the sale of false hope. I Yeah, I despise this sort of marketing uh vehematly. Uh yeah. So anyway, I've heard um a lot of these sorts of uh nonsense um sort of arguments.
The only tactic that wins and it wins every single time is to put in the highest bid and that's it. >> Conclusion: Knockout bids don't work. Highest bid does. learn to detect marketing. >> Yeah. So, it can be quite disheartening.
Uh you go into a lot of trouble, but unfortunately, there's no one out there that's got uh a trick to win you auctions. Um if you miss out, it's it's just unfortunate. That's all there is to it. And there's a lot of marketing misinformation out there. There's no such thing as the the knockout bid. Uh admittedly I don't have any data on that but uh certainly the theory makes no sense.
The theory is based around you've got more money than you know what to do with which could actually work against you. I mean someone could actually just increment incrementally bid just to so that you end up paying more knowing that you're always going to uh outbid. Um but yeah it can be quite disheartening. So I can understand the frustration but there isn't any uh trick uh to this. It's just the sale of false hope. And the theory being if there's a sudden increase or have more money than than you do, uh I think the the theory that person is going to give up before they uh have their maximum bid.
That is that is more nonsense. I think there's more chance of someone bidding above their maximum than ending below it. >> All right, so that wraps up episode nine of the expert busting series. Please join us next time for episode 10. Why buying property with a high growth history is a mistake. Thanks for watching.