The Unconditional Blog

The impartial voice of the industry

 
28

Selling your home? – auction marketing reaches new high

Posted on: March 21st, 2010 | Filed in Buying / Selling a home, Media commmentary, Online marketing

iStock_000009029079XSmallWith the level of homes on the market reaching new highs the extent of auctions is also reaching new highs as reported in the Sunday Star Times today.

In February of the 15,129 new properties coming onto the market, 1,904 of them were being marketed as auctions. That is 1 in every 8 of these new listings. The total is an all time high – surpassing the 1,410 properties marketed as auctions in August last year.

The chart below tracks the percentage of all new properties listed on Realesatate.co.nz in the past 3 years that are being marketed as auctions. The data is adjusted in this chart to exclude mortgagee properties (which predominantly are marketed as auctions as the lender usually is more keen on auctions).

Auctions of new listings

The February total represents 12.6% of all new listings. The chart does clearly show the fact that compared to both 2007 and 2008 auctions have become far more popular as a method of marketing properties. As a point of note the percentage of properties listed in August last year marketed as auctions was actually slightly higher than the February figure at 13.2%.

Article Discussion

  1. Russell says:

    The article also said “buyers aren’t bidding, leaving the majority of properties unsold on auction day” and “Last week the Sunday Star-Times attended auctions in Auckland, Wellington and Christchurch where 40 properties were for sale, but only six sold under the hammer” and of the Wellington auction ” five were passed in at prices reached almost solely through vendor bids”

  2. Steve says:

    When media starts spruiking there’s a lot, there may be less soon. Even better time to auction now. I think Melbourne has 70% plus auctions in their very active market. Hopefully we will reach that level.

  3. Ross says:

    The majority of the auctions I have attended so far in 2010 have either failed to get any bids at all, were passed in on a vendor bid or if they have sold this is only after the auction has been stopped several times and the owner consulted, (some would say “conditioned” under high pressure), so it would appear rather than extracting another bid from the buyer it is the seller who is convinced to lower their reserve price.

    If the home was thoroughly appraised at the outset then the reserve should already have been realistic. The alternative is to avoid auctions (like many buyers do) and use an asking price that reflects a combination of owners expectation and the appraised figure which will be based on other similar recent sales.

    In my office we tend to put an asking price on the majority of our listings. As the Real Estate Agents Act 2008 now requires an appraisal of all homes then we will always have our own idea of what a home is worth and this will be discussed with the owner up front.

    Properties with asking prices seem to have more viewings than auctions. I agree in a super heated market auctions can occassionally secure a spectacular result but in a balanced market or a buyers market it is simply not the best strategy to use. So don’t be fooled!

    Maybe some real estate offices think that an auction listing negates the requirement to supply an appraisal? This could be the reason so many agencies are pushing the auction method.

    An auction campaign should only be suggested if there is a high level of certainty that the given property will sell on the auction day under the hammer – isn’t that what an auction is all about?

    If you are considering an auction of your home the points raised here are worth reading: http://www.jenman.com.au/BS_S_Auctions.php

  4. I sold a property at auction 2 weeks ago that I had “accurately” appraised between $600,000 to $700,000. I am the most active agent in this particular area and the data and my experience certainly supported my CMA. The owners didn’t like my CMA and their expectations were just over $700,000 but they had faith in a system that would be more accurate than any CMA. The house sold at auction for $778,000 because two people fought tooth and nail to get it and threw caution to the wind. In the final moments of the auction neither buyer could give two hoots about boring-old historical sales data. How totally irrelevant that data was – as it always will be! You never know what someone will pay for a house if they love it and just have to have it for some reason, any reason.

    Price a house accurately before it sells – not possible!

    Oh and while I think of it – the next week I sold another at auction that an agent appraised at $450,000 to $550,000. I appraised it in a broad range up to $630,000. A five bidder auction saw it sell for $618,000. The two top bidders bid $40,000 more than the third bidder. Note I got this appraisal wrong too. Ask the owner if they sold under duress. Lucky the owner didn’t trust the $550,000 appraisal from an experienced reputable agent.

    Putting a price on property is a huge risk in any market. Buyers love prices, but sellers can lose bigtime if the price chosen is wrong. Sellers pay agents, not buyers. Our responsibilty is to offer excellent value for the fee we charge. We are not in the business of valuing houses – that’s a valuer’s job and they get paid well for what they do.

  5. Alistair Helm says:

    Steve,

    That single statement “Buyers love prices, …… Sellers pay agents, not buyers” is very telling – but so true. It speaks so clearly to the whole model of real estate and to some extent the void (of services) between buyers and sellers.

    Thanks for sharing the data of real examples – really brings these discussions to life.

  6. IanC says:

    Steve – those are the good outcomes at auction – what else happened? How many passed in? How many failed to sell?

    Auctions are great when you have 2 or more committed (and preferably price insensitive) bidders. If there’s only one committed & price insensitive bidder, the outcome is arguably sub-optimal.

  7. Tim says:

    I’m in the market for a house the moment. As a first time buyer the auction process seems complex, costly and intimidating so we are refusing to view anything going for auction and have more then enough properties to view to keep us busy.

  8. Alistair Helm says:

    Tim,

    Appreciate that feedback – will provide some “food for thought” for agents.

  9. IanC says:

    Well you can add my feedback too then – as a general rule buying at auction requires spending money, and there is no protection against a bidding war from someone irrational. I could stomach spending money to take part in rational bidding, or not spending money and bidding against an irrational bidder, but not the way it is currently.

    I’d also add that its possible to spend money to prepare for an auction and find that the vendor’s expectations are well above market and, even if you are the highest value buyer the house isn’t for sale.

  10. Andrew Burns says:

    Bang on Ross!

    Like Tim I ignore properties for Auction and only contemplate properties with a listed price.

  11. I love buying properties with a listed price too! It’s especially profitable in my neck of the woods.

  12. Davina Crouch says:

    As a buyer, I agree in part with Tim’s comments. It’s hard looking at auction property with no clue as to the vendors or agents expectations. The price bracket the listing is under, is certainly never an accurate gauge in my experience.
    I wonder if agents would consider using a ‘guide’ price attached to auction listings. This is used extensively in the UK and does what it says on the tin.
    It is solely intended as a guide, properties can sell for less than the guide price, and they can exceed them, but at least for the buyers they are able to approach the opportunity with a realistic idea of the expectations.
    As for Steve’s
    ‘Buyers love prices, Sellers pay agents, not buyers. We are not in the business of valuing houses – that’s a valuer’s job and they get paid well for what they do’
    It reads a little contemptuos towards buyers. Sellers only pay agents with the money they receive from buyers, and I’m certainly not about to employ a ‘well paid’ valuer to asses every property I am interested in.? I rely on the agent to offer this information, and would have thought that if you sell houses day in day out, follow the market, and have in depth knowledge and easy access to sales history you should be in a good position to give an indication of price, which could benefit both the seller and the buyer.? It’s a statement which fuels many (especially first time) buyers scepticism of agents.

  13. Davina I really do get where you’re coming from regarding price guiding for buyers. All customers need to be properly served, buyers and sellers, yes. Sorry for sounding contemptuous, I don’t mean to. It probably stems from my slant towards sellers and my aim to get them a good price. Buyers are not well served by buyer’s agents in NZ and that is a shame. We need more of them, but trust me it can be a sould destroying task escorting a supposedly good buyer to 50 houses and then the buyer decides to rent instead of buy. Essentially, that’s why I personally can’t afford to focus in that area. It’s too risky, not a good business decision for me.

    Personally I provide to buyers the competitive market analysis that I’m now required to do for a property. So in the case I described above; buyers had access to my $600,000 to $700,000 cma. The market took the price higher, frustrating for buyers, joyous for sellers. My buyers have access to all my CMAs now, full disclosure of previous relevant sales is the norm now – it’s a good thing that came out of the new REAA.

    The problem for you me and everyone is that all markets, not just real estate, work on supply and demand factors that often change daily. A newspaper headline can effect a property’s price on a particular day by 10%. Can I control that? Can you? An owner usually wants more than a buyer is willing to pay – that’s human nature.

    Life would be so easy if houses were traded on the stock exchange and you could assess the value every second of the day based on supply and demand. Even stocks gap up and down in value on news, so although I could give you an estimate of how much you might have to pay for BHP shares tomorrow – something could easily happen that would change everything.

    In real estate, one new lotto winner buyer could push the price up. If the seller wins lotto the price could halve because she just wants out to move to a mansion.

    May I ask you a question. Does an owner’s or agent’s expectation of price affect the value of a house for sale? Who determines value?

  14. Russell says:

    I thought real estate people had to give a precise price these days when they do a market appraisal? Surely a $100,000 range was not the intent of the new law?

    Also if you are a seller shouldn’t the appraisal you have been provided with by your agent be confidential to you as the seller and only passed on to the buyers if you have consented in writing to that disclosure,

  15. Tim says:

    If Steve thinks sellers get better value at an auction it reinforces my point that buyers are better off avoiding them.

    According to the SST article 70% of Harcourt’s auction properties in Chch were passed in. If they’d been listed with a price, I probably would have looked at them and who knows maybe bought one.

  16. Steve Kodad says:

    Auctions have started to take hold in Charlotte (NC), and enjoyed the article a lot…and the comments. Really interesting and thought provoking. It certainly does seem like a process that will work for certain sellers, but definitely not for all.

    Thanks again,
    Steve Kodad
    Green Team of Carolina

  17. Steve Koerber says:

    Russel, why would I want (or be required) to keep a fact based CMA confidential? We’re essentially talking about how much similar homes sold for. Should that stuff be secret squirrel? I don’t get your comment.

    You’re absolutely right that sellers get better results by auction. The best homes (you know those nice ones that so many people want) should probably always be auctioned, especially since the process will give more people a ‘chance’ to buy.

    Regarding your preciseness. What should I do if the home I’m appraising is exactly the same as one that sold for $600,000 and another that sold for $700,000. Do I pick $650,000 as the precise appraisal figure? Or do I give a range of $600,000 to $700,000? Tell me what you would do.

  18. Davina Crouch says:

    Thanks Steve for your reply. I certainly appreciate that any valuation given will be variable under the circumstances of an auction, (even offers on a listed price are going to be market dependent) it is of course the nature of auction as a method of sale. My point/suggestion was that perhaps the guide price could be attached to listings, so that potential buyers can be realistic about whether the property is/could be in their price range. (I haven’t always found the listings in the search price brackets accurate)There will always be buyers who walk away from auctions disappointed, but I do believe having a guide price would get more buyers interested? Homes in all price ranges are offered for auctions in todays market, so an auction does not neccesarily reflect exclusivity, but perhaps the lack of a guide price harks back to times when it tended to be higher end properties in auctions.?
    For me personally at the stage of a preliminary search for property I am interested in price. In fact it’s crucial. Step one; Can I afford it? I do believe that an owners price expectation will have bearing on the sale price, but the agents valuation (CMA) is surely as good a guide as both seller and buyer could hope for as a starting point. It should potentially indicate to buyers if they have a realistic opportunity to purchase or not. It should also give the seller a realistic price range the can hope to acheive. (after all an agent doesn’t want to be trying to sell a property with an unrealistic price it’s owner dreamed up) I do see the gap between buyer and seller expectations, which I believe will always exist, and appreciate the effect the market will have on the end result, but beleive that with agents offering honest and transparent guide to pricing, the interest level in property you are selling will be raised. Even with your loyalties leaning to the seller who employs you, I still see an opportunity for agents to be more of a point of reality for both parties when it comes to price, and believe that the agents who are succesfully achieving this will be the ones attracting buyers. Perhaps this changes as you go up the property ladder, but from down here it’s what matters to us.

  19. Davina Crouch says:

    PS Steve I have read the information available on your link and appreciate that I’m probably preaching to the converted to a large extent, but it’s always interesting to have a different point of view, well hope so when I’m offering my 2pence worth!!

  20. Alistair Helm says:

    Davina,

    I really appreciate you taking the time to share your thoughts as someone who is clearly engaged in the property buying process at the moment.

    In terms of the website, I have to share your feelings, as both a property buyer and as operator of the website I would like to see every listing having a clear and transparent price indication. This I think is the key – an “indication”.

    I am not a real estate agent, however I am sure those agents reading this will share their thoughts and experience. My view is that a price published on a listing is in no way a “Retail sales price”. Every property is the asset of a person (trust, couple etc) – they will choose to accept an offer to sell when the price meets their expectation of what they think the house is worth balanced against their personal needs and motivations to move house. So if they sell for $330,000 when the indicative price featured on the listing said $320,000 or $350,000 or even $270,000 – it is their decision. The key thing is the indicative price is a key part of comprehensive information.

    Out of interest I just did a very small bit of research (very rough research) – I took at random the latest 50 property listings on Trade me for the Hawkes Bay – why did I do this ? – Trade me feature private sales, and I believe private sellers (who are actually future buyers) market property exactly as they would like to see properties marketed.

    So 50 properties – 40 of them from agents and 10 from private sellers

    of the 10 private listings 9 of them have a price – 90% of the private listings have a price (or price indication)

    of the 40 licensed agent listings 23 had a price – 58% of those listings by agents have a price (or price indication).

  21. IanC says:

    Steve K: “The best homes (you know those nice ones that so many people want) should probably always be auctioned, especially since the process will give more people a ‘chance’ to buy.”

    I agree with the first part to a certain extent, but the second looks wrong to me —> an auction excludes buyers who would require a conditional sale and is less inclusive.

  22. Ian I see your point about excluding conditional buyers. Yes auctions do preclude some, but from a seller’s perspective, if they want a sale, many I represent can’t be bothered with conditions.

    My 2nd bit about giving more people the ‘chance’ to buy was alluding to the fact that a really cool property might have 10 people who want it (it happens more often than some would think!). Letting them square off face to face squabbling to see who rises to the top could be seen as a fair way to decide who the new owner is going to be. Much fairer (to all buyers) than pricing and accepting the best of the first three or so offers.

  23. MarkyMark says:

    An argument can be made that auctions are nearly always sub-optimal from a sellers perspective in that you don’t get the most that the purchaser would be willing to pay just a small increment over what the second-highest bidder was prepared to pay (i.e. the purchaser will usually have been willing to pay more than they did – the exception is perhaps in hot markets where emotion gets the better of bidders and they pay above what they can afford).

    A failed auction does have the advantage of bringing home to vendors the state of the market and increasing the chance that they might lower the price to achieve a sale.

    In terms of expensive and unique properties I think that an often overlooked method of sale is the tender. This system is good for purchasers in that they can bid in a considered manner. This system is potentially best for vendors in that they can establish the maximum price that the market is prepared to pay (absent a crazy runaway auction).

    I once acted as a solicitor for a bank in a mortgagee sale where one of the tender bids on the property was almost twice all of the other bids (large rural property, not clear if you could sub-divide). Tenders also work fine with conditional offers.

    The problem with tenders was always that you had to submit a bank-cheque for the deposit (i’m not sure if this is still the practice) which put buyers off, the process was a bit different and buyers often felt that they had to get a lawyer involved.

  24. MarkyMark, good valid points. Just one point I’d like to make is that well orchestrated auctions often sell well above the under-bidders last bid…there’s a solution to every problem!

  25. IanC says:

    So Steve, how’d the auctions on the 31st go? (this is, by the way, a slightly rhetorical question as I can see several houses are still for sale).

  26. My favourite subject… and one that I’d written a blog about last year on this same site which can be viewed on my website or http://unconditional.co.nz/blogpaulmiddleditch/2009/06/05/why-is-auction-the-best-method-for-selling-property/comment-page-1/

    In any market, auction will bring you your very best buyers prepared to pay you the most amount of money on that given day after a decent marketing campaign.

    There are 3 reasons why auctions don’t work:
    1) The agent doesn’t know how to run a proper marketing campaign
    2) The marketing wasn’t effective enough
    3) The vendors expectations aren’t realistic (or they are not truly motivated to sell)

    Sometimes the truth does hurt and a property doesn’t value up in the eyes of the market to what the vendor believes it is worth. If the property has been marketed properly by an agent who knows how to market an auction campaign and it doesn’t sell, then either their is no market for that property on the given day (in the event of no bidders) or the vendor is prepared to purchase their own property at a level higher than the highest bid. That is in effect what they are doing.

    I was at an auction last week here in Chch where the vendors didn’t believe in auction, so they wanted to try it for 2 weeks without a price first. They received 4 offers in a multiple offer and then decided to take it to auction. 4 weeks later the property sold for $805,000 (declared on the market at $745k) in the auction room. $120,000 more than the top offer at the multiple offer (and one of those 4 offers was in the $400’s). The vendors walked away ‘loving’ the auction process.

    Any agent who thinks he/she can accurately guess what a buyer is prepared to pay for a property (and what a seller is prepared to accept when the offer is put in front of them) is playing God. That is effectively what you are doing when you are pricing a property. And more so, any agent who is not offering ‘auction’ as a method of selling to their owners is robbing them blind of the opportunity to achieve a maximum selling price. It is the owners decision, but it is up to us to give our owners the correct information for them to make their decision. Agents should be getting themselves skilled up to learn how to run a successful auction campaign.

    Ross’ comment about pressure being put upon sellers during negotiation in the back room…well I can’t say what happens in other parts of the country but in our rooms, if the top bid isn’t enough for the owner to sell, then we go back to the buyer and ask for more. Once they have given their best price and we are sure of it, then the seller is simply given the opportunity to adjust their reserve to achieve a sale or they keep their property…their choice.

    Keep up the good battle Steve!

  27. Just had some more time to read some of these posts re valuing properties and pricing v no pricing etc…

    As agents, we understand the frustration however every day of the week we see property selling for far greater and far below what we see the value being.

    If you took say 10 experienced agents who work in the same area and asked them to value a stock standard house for that area I guarantee they would all come up with the same price. In fact we recently did this within our franchise and from memory there was about a $150,000 range on a middle of the road property in Halswell. In fact I’ve had owners (husband and wife) who had varying thoughts to the value of their property.

    My point is that properties have different values to different people.

  28. Alistair Helm says:

    Paul,

    So true – property / a home is not a commodity that is interchangeable or regularly traded and that is why there is not really a price – a price for a single property would in theory change every day based on who is the buyer and what there circumstances are, equally what the circumstances are of the seller.

    This does not mean that an auction is the best way or the only way to ascertain the market value – the market value will be assessed only when it sells and that agreement is reached at the price that the seller feels is “just” acceptable and the buyer feels is “just affordable.

Post your views