| A property auction is not an especially civilised process | | | | process - but it is a part that has a major influence on |
| when you think about the emotional and financial | | | | the price you might (or might not) achieve post-auction. |
| magnitude of the decision-making involved in either | | | | Beware. |
| buying or selling a property. Auctions are a fabulous | | | | 8. If a property does sell at auction it only sells for |
| way for real estate agencies to sell property - but for | | | | slightly more than the second highest bidder is |
| property sellers there are serious issues to be aware | | | | prepared to pay. It is the 'under-bidder' who determines |
| of. | | | | price. |
| Here are some issues for property sellers to consider: | | | | 9. By auction day, a property seller will have spent |
| 1. The auction system itself is in direct conflict with the | | | | most (if not all) of their marketing budget and be in a |
| concept of 'fair market value'. Fair market value implies | | | | vulnerable position if the property does not sell. This |
| a willing seller and a willing buyer unencumbered by | | | | adds hugely to the pressure on a seller to accept any |
| undue pressure, each acting in their own best interests | | | | live offer on auction day (even if this is well below the |
| and a reasonable time for exposure in a free and | | | | seller's price expectation). |
| open market. That doesn't sound like the auction | | | | 10. Auctions allow agents to completely avoid the very |
| system to me. | | | | hard issue of establishing an effective marketing price. |
| 2. The typical auction campaign timeframe of 3-4 | | | | This favours less qualified or skilled agents who simply |
| weeks is unlikely to expose a property to the | | | | rely on a 3-4 week auction 'process' to establish price. |
| maximum potential market for the optimum period. | | | | This changes the entire agency relationship from one |
| Potential buyers who need to sell a house first, or | | | | where the agent acts in their client's best interests by |
| arrange finance, or terminate an investment, or | | | | making every effort to talk price up and provide |
| repatriate money etc. are unlikely to be able to | | | | detailed market evidence to justify the seller's price |
| participate. | | | | expectation, to one where an under-bidder sets the |
| 3. Auctions imply 'no-price' marketing - yet price is | | | | price after just a 3 week marketing campaign. That |
| widely recognised as the single most important piece | | | | just doesn't seem right! |
| of information for buyers. No-price marketing really | | | | 11. Here's how auction agents establish price. The |
| annoys buyers and many simply won't take their initial | | | | auction reserve is usually set just prior to auction |
| interest further in the absence of an asking price. Why | | | | based on 'feedback' from potential buyers. To get this |
| would any seller want to annoy prospective buyers? | | | | feedback the agent asks potential buyers what they |
| 4. Although the typical auction campaign is 3-4 weeks | | | | think the property is worth. How many buyers do you |
| the typical auction sole agency period is 3 months. Say | | | | think are going to give a high figure? This is called |
| what? The two should be consistent. If an agent says | | | | property seller 'conditioning' in the industry. |
| they only need to 3-4 weeks to sell a property by | | | | 12. Many properties get passed in with either no |
| auction they shouldn't need an agency period any | | | | bidders present or no bids from potential buyers who |
| longer than say one week post auction. If they need a | | | | are present. What impact do you think the knowledge |
| 3 month agency they are hedging their bets that the | | | | that there were no auction bids or bidders is going to |
| property won't sell at auction. | | | | have on the property seller's ability to achieve a good |
| 5. When recommending going to auction, agents often | | | | price post auction? In these circumstances the auction |
| have no idea how many buyers (if any) may | | | | process has likely established a maximum price level in |
| participate in the auction. That's a scary thought. Ask | | | | a very public domain beyond which potential buyers |
| the agent to quantify the number of bidders who will | | | | are then unlikely to go. |
| be at the auction and see what response you get! | | | | So when is auction appropriate? In my view property |
| 6. There is no evidence to suggest that auctions | | | | auctions are OK in the following circumstances: |
| achieve a higher price than sale by private treaty or | | | | 1. Where the property in question is patently in demand |
| tender - and indeed the exact opposite may in fact be | | | | and there are a quantified number of potential bidders. |
| true. | | | | 2. Where the property seller is under severe time |
| 7. Many properties do not sell at auction. They sell | | | | pressure or financial duress. |
| before or after auction. This casts doubt on the value | | | | Even under these conditions however there is no |
| of the actual auction method itself for selling property. | | | | guarantee that sale by auction will yield a better price |
| Agents will say that auction is only a part of the selling | | | | than sale by private treaty or tender. |