Continuing this series of blog posts providing an insight into the experience of house hunting and buying. This is the 3rd and concluding part and follows “Sharing the experience of house buying” and the “Open homes and property data – the DIY of home buying”.
The chosen method for selling this particular property was an auction.
Our current situation is that we own our own house, however at this time we have not placed it on the market. This situation I would guess would not be uncommon, as many people start by “watching the market”, waiting for the possibility of a property that really excites them to come onto the market; and at that point make the move to list their house for sale.
Our property is in a ready state to be put on the market. We had spoken with a local agent who had assessed our property and judged that we could very likely find an interested buyer in the current market, at a price which would afford us sufficient funds to buy this new property we had found. However this situation of not being “cashed up” meant that an auction was not our preferred approach to buying this house; it was however the chosen method of selling advised to the vendor of this house by the agent.
Whilst an auction did not suit our particular situation, this sale process does have is advantages and disadvantages. Clearly it’s attraction lies in the fact of the commitment it forces upon serious buyers to bid unconditionally and thereby guarantee a sale for the vendors. However the downside of an auction as is typified by our circumstances, is that it can potentially restrict the potential pool of buyers to just those who are financially in a situation to bid. A committed bidder needs to be in the full knowledge that if they are the successful bidder, they will need, immediately upon the fall of the auctioneers hammer, to sign an unconditional binding agreement to buy the property and write out a cheque as a deposit for 10% of the sale price.
Our situation was that whilst we could not bid on the property, we could offer a price which in our judgment would be a good price as compared to the market value. It is true that we could have presented a conditional offer to the agent prior to the auction; however we were reluctant to do this, as to do so was in our judgment revealing our hand. Our preference was to be patient and see if the auction surfaced a bidder sufficient to reach the vendor’s reserve.
As an added point of reference in researching this property, we did undertake a Google search of the owners. Their details were on the title to the property, which is public record. In some cases the title records a family trust which can limit such reseaerch. There is nothing illegal or even immoral about this action – we sought to find out public information about the owners – information which in our judgment could be helpful in appreciating any circumstances surrounding the sale, should that be available. I will not disclose the facts that we discovered; however what I will say, is that we discovered facts that in our judgment could have been a factor in why the owners were selling.
In the week leading up to the auction we did become resigned to the fact that as we could not bid at the auction, in which case our chosen strategy was to attend the auction with the express intention of viewing the outcome, and if the property was “passed in” with the reserve not met, then we would act to introduce ourselves to the agent as conditional buyers.
One thing that did surprise me in that final week leading up to the auction was the lack of a follow-up call from the listing agent. I would judge that we had made ourselves very conspicuous as potential buyers. We had visited the open home 4 times over the period leading up to the auction. We had completed the open home book each time and after the 3rd visit the agent greeted up warmly by name. So the agent knew who we were; had our full details including my business card and also knew where we lived. Despite all of this, except for a single telephone call after the first open home, we were never contacted again by the agent to ascertain our interest in buying, nor clarifying our situation. No email or call. That did surprise me, as I was sure we would have been seen as good prospective buyers.
Taking it one stage further given the information we had shared, the agent could potentially have undertaken some due diligence on us, given the knowledge of our address and contact details. Some Google searching and property record reviewing which all agents have access to would have helped profile us. All public information open on the web.
The day of the auction arrived, as did a good turnout of locals. There is always that wonderful sense of uncertainty looking around at the people attending an auction and wondering if that person is a buyer or an interested observer and also who is the owner as they need to be there on the day. In total the on-site auction attracted around 20 people.
The auctioneer provided as usual, a summary of the property and went on to state the terms of the auction. Within this latter statement, he made a comment that completely surprised me.
Now whilst in attending a few auctions over the years I have been made painfully aware that the successful bidder would need to sign an unconditional agreement and pay a deposit of 10%, I had never heard the statement made at this preamble to this auction to say “that as had been agreed with the vendor some of the bidders had pre-negotiated variances to the terms of the deposit and the settlement date”. This was a surprise to me. Now maybe this is a recent change, but I did not know that there could be any terms that were negotiated. I do appreciate that the basic term of unconditional purchase would always still apply, but a delayed settlement might have been an option we may have been interested in. Anyway I chalked that down to experience.
To present the exact process of the auction I am keen to share the actual bidding and negotiation, however rather than detail the actual bids (which potentially could disclose the property) I will use numbers based on indexing the actual numbers to the current median price of property sold in NZ in February 2011 – $350,000.
So I will start by “disclosing” that the property was sold at a price of $350,000.
The auction began slowly with very hesitant bidding at levels well below the CV. The equivalent CV would be $285,800 and the first bid was for $264,000.
As ever (well from my very limited experience at least) those people who bid first at auctions tend not to be the ones who buy. In this case a new bidder entered the process at the second closing call and for a further 5 minutes the bidding crept up well above CV reaching after many tortuous assumptive closings by the auctioneer a price of $334,000.
At this point the auctioneer called for a 3rd and final time and passed the property in for negotiation between the highest bidder and the vendor.
After 15 minutes of protracted discussions and separate negotiations between the parties facilitated by the auctioneer the “stage” was reset with the auctioneer announcing that the property was now on the market at the price of $350,000. The auctioneer proceeded to await any counter bids, not a word was said and the hammer fell at the sale price of $350,000.
So how did we feel at the end of this process?
I have to say surprised. We made some private bets as to the level of top bidding and the reserve. We felt that the bidding would not reach $350,000. Also we were sure the vendor had a higher expectation of sale price and had set a reserve at $387,000!
I can with full honesty say that we would have paid $370,000. We would have made that as a conditional offer on selling our house. I would go even further and say that we would offer that today if the property came back on the market. Additionally there may have been another conditional buyer out there like us who may have paid even more than we would have paid – maybe not, but we will never know. The property is sold, the vendor moves on and the new buyer moves in and the property market chalks up another sale in March 2011.
So what does this detailed insight into the buying process highlight? Well, as I have said from the start this process was not a piece of research, I was a genuine buyer and that is the standpoint upon which I make these comments. So in this situation the vendor could have potentially received more money for their house. That extra would have come with conditional risk which the difference in price may not have justified.
The whole process has heightened my awareness of the scale of research required in the process of buying a house. The process has also reaffirmed the appreciation of the emotional roller coaster associated with the process of buying a house. It has also I hope helpfully highlighted to real estate agents some of the issues and behaviours of buyers which they could take note of to enhance the marketing and services to buyers.
As to the future – well we will probably keep looking! – and researching.