It was with great media coverage that the auction of a property on the North Shore of Auckland took place last weekend (Sunday 26 Oct). The property was advertised at a $1 reserve and eventually “sold” for $685,000 – apparently an independent valuation undertaken within the past 12 months had valued the property at $1.03m.
Well the salutary reminder is the classic phrase Caviat Emptor – let the buyer beware! – the NZ Herald is reporting this morning that the buyer cannot identify the vendor!
The circumstances from the media coverage are as follows:
- The property was a private sale – no agent was involved
- A licensed auctioneer presided over the auction
- The highest bidder “won” the auction
- The winning bidder “apparently” signed a contract with the vendor before he was engulfed by the hordes of assembled media – upon the completion of the interviews the vendor had disappeared – and no contact has been made subsequently, and the buyer has no contract
The story may yet play out, however there are a couple of very salutary points to highlight from this incident:
- Property purchases are serious matters and legal contracts verified and checked by lawyers are a critical part of the process
- The exchange of contracts is not a phrase – it is an act, a buyer and a seller needs copies of contracts as do their lawyers
- Without the services of a licensed real estate agent – who is there to ensure the process of paperwork and compliance activities are undertaken?
- Having an licensed auctioneer call an auction does not provide for any control of the sale contracts. Auctioneer are covered under a different Act from real estate agents. Auctioneers that call property auctions do not need to be licensed real estate agents. Auctioneers are a profession as is real estate – they should be engaged with a clear view of each of their respective roles
- The heat of the moment of purchase at an auction or a traditional sales agreement time can be frought with emotion – in the heat of the moment, don’t forget to cross the T’s and dot the I’s!!
According to the NZ Herald the buyer was having difficulty attempting to pay the seller the $69,800 deposit – “I was going to give him cash in a briefcase”. The Herald further reports ‘He (the buyer) now fears the auction may not have been above board’.
The buyer is probably lucky he COULDN’T hand over nearly $70k in cash and is probably out of pocket no more than a few air fares back and forth from Christchurch to Auckland.
A properly run no-reserve house auction is usually a thrilling and satisfying experience. I’ve personally condusted two (as an agent) and whenever I’ve had the opportunity, I’ve observed others. Based on my observations, I don’t think a poor sale price is possible if a no-reserve auction is well-run.
I must admit I did think the sale price of the no-reserve auction in question might have been a little low, but then, in my books, it probably wouldn’t qualify as being ‘well-run’, especially noting that it was a private sale. The after-sale issues point to a lack of professionalism all round.
Of course, my comment above comes from a seller’s agent’s perspective. When buying privately buyers should always seek professional advice from their lawyer. Some agents will give limited help to a buyer who wants to buy privately – buyers just need to ask.
Steve, what is a well run auction? This is what happened to me.
After the advice of my agent, I auctioned a house last year. After spending $2500 on marketing (1/2 or full page in the property press every week), 4 weekends of open homes, had nobody bid at auction and only two people turn up. Leading up to the auction date, we had weekly meetings with the agent who gave us market feedback based on the open homes. Essentially we were put under pressure to lower our expectations based on the open home feedback.
Our expectation was $300000 while we were advised to sell for $250000 if it was offered.
As you can imagine it was a deflating feeling on auction day and we took the house off the market and put tenants in. Two months later the house sold for $307000 to an agent from the same company as we origionally listed it with.
My faith in the auction process was gone. On the day, due to the pressure we were put under (re:lowering our expectations), had somebody offered $250000 we would of accepted.
Was the above senario a properly run auction?
Hi Raro, I see your story repeated many times and it is unfortunate. I’m glad you raised this point here.
I’ve run about 400 auctions, most end in sales but of course some don’t. What I’ve learnt is that 90% of owners have expectations higher than buyers. This is not rocket science, it’s human nature. When I list auctions I explain to my sellers that an auction is a test of the market within the 3 or 4 week time frame leading up to the auction. I ask my owners to look at the market in “one month time capsules”. This way, they understand that their November price might be lower or higher than their December price, depending on the quality and number of buyers available in those time periods. The price achieved will depend completely on “who sees, likes and bids” for the property (and whether the owner will accept the highest offer).
So, in answer to your question, a well run auction starts its life on the basis I’ve just described. Feedback should be treated very carefully, because I feel that most it is pure guesswork (verbal opinions rather than written offers). A well run auction will achieve the best price available at the time of the auction. Your auction did that, so it was possibly well run. It was good that you were able to wait and test the market (time capsule) at a later date for a better price – a price that was not possible at the time you auctioned. Regarding the pressure that was put on you – next time you auction you should find an agent that understands the “one month time capsule” concept. PS – Whenever I sell an auction $250,000 or so above the owners expectations it reinforces to me that well run auctions are the way to go. It’s how I would sell next if I was selling my own home. So don’t give up on auctions, they’re great!
There are a few other things I do that make my auctions work better than some. But I’d need to be listing you for sale to go through those details with you. Cheers and thanks again for submitting a great question.
PPS – we all hear the negative “auctions don’t sell” or “auctions are no good” mantra. In good or bad markets, just as many “for sale” properties fail to sell as “auction” properties fail to sell. It’s just that we don’t hear “For sale doesn’t work” shouted from the rooftops.
PPPS – An anti auction agent will tell you that auctions are flawed because you only ever get a little bit more than the under-bidder was prepared to pay. Further to my definition of a well run auction, the top bidder will pay much more than the under bidder if the agent knows how to orchestrate it.
Oops I see you didn’t get an offer of $250,000. Glad you didn’t! Hopefully you can see that if your auction was run “better” you may have had an offer like that, but may not have felt compelled to take it.
Thanks Steve, it all worked out well in the end as we were lucky enough to sell in october last year before the down turn, being the best house in a dodgy street i shudder to think what we would get for it now. We live in rarotonga and watch our equity slide in our remaining properties in NZ. We are in for the long haul so not to phased.
Alistair – the auction has now gone to fruition and the guy has got the house at the agreed price according to the Herald.
I wonder how much of the story about the seller legging it was all just media BS……