Why is auction the best method for selling property?
If I were to ask you ‘how many buyers you think there are for your property in todays market?’… Would you say there’d be 3…5…7… or more buyers prepared to pay the money that you’re willing to sell at?
For the sake of this exercise, let’s conservatively suggest there would be three buyers for your property.
How would you work out which of these three buyers would be prepared to pay the most for your property? Or would you just sell your property to the first buyer to come along prepared to pay your price? You see, listing your property exclusively (with or without a price) and without a proper marketing programme, that is what you’re doing. Would you prefer to sell to the first buyer or the buyer willing to pay you the most money?
I believe the best way to achieve selling to the buyer prepared to pay the most is obviously by auction.
In this current market buyers believe they have the upper hand and I guess generally that would be a fair assumption. Buyers are wanting to attack the prices on properties and it’s a bit of a frenzy to see who can get the best ‘bargain’. (This is part of the reason there is currently a higher fall-over rate on conditional offers.) If the property doesn’t have a price on it, you’ve immediately removed their no. 1 target. How can they start discounting the property when there’s no price? As Phil McGoldrick recently said, a price only tells buyers what they don’t have to pay.
The difference between marketing a property with no price and marketing by auction is that auction imposes a deadline and buyers know that if they have interest in the property, they’d better be at the auction…something is going to happen.
One of the major differences between tender/deadline treaty etc. and auction is that by tender/ private treaty buyers don’t get to see what their competition (other buyers) is bidding. Auction is public and buyers get to see every move other buyers are making. Buyers will pay more for a property in two instances. When they believe it is worth more and secondly when they see someone else believes it’s worth more.
Watch for my next post where I’ll list some of the advantages of selling by auction over other sales methods.
Thanks for taking the time to read my blog. If you wish to discuss this or any of my blogs further please contact me anytime paul.middleditch@harcourts.co.nz or visit my website www.paulmiddleditch.harcourts.co.nz
How much does it cost the vendor to run an auction?
Hi Matthew, The only additional cost for the auction is the investment you pay for a good auctioneer (more on this another day). Generally a good auctioneer will charge $500-$675 for their services. A good auctioneer is worth every single dollar you pay them when you consider they can effectively get sellers tens of thousands of dollars more than their expectations or above the reserve. You might think this would only be in a bouyant market, but I have seen it vendors in the past few months walk away with up to $30k more than what they were prepared to sell at.
Now of course to back up the auction process you need an advertising campaign to attract the buyers (and as many of them as possible). Sellers can spend anything up to $10,000 on advertising campaigns or as little as $1000. I would normally encourage my sellers to invest around $4,000 in an auction campaign (depending on the property). This amount will cover the auctioneer services, LIM, Title, Picture sign board, and comprehensive advertising. As I said before what’s a $4,000 investment to protect your top value in your property. I see sellers every day of the week drop their pricing (in an exclusive listing) by $5,000, $10,000, $15,000 week after week to try and attract a buyer. Why not invest that money at the outset and maximise your chances of achieving a premium sale?
Just as a matter of interest, what % of homes actually sell using Auction marketing.? Ive been to heaps where a sale hasnt happened.
Very good question Kevin. Actually selling by auction over the past year or so has proven to be a far more effective method of selling property. Current statistics through my company show that selling by auction gives you a 30% greater chance of achieving a sale. I will post further statistics in my next post about the advantages to sellers, selling by auction.
Ive heard that not a lot of companies don’t do Auction why does Harcourts always seem to be doing them.
Thanks for your question Paul. I would suggest that those companies not utilising auction do not possess the required skills to run successful auction campaigns. In fact I would go as far as saying that some of the companies and some of the consultants that are using the auction method still don’t have the necessary skills to run auction campaigns successfully. Within my company (Harcourts) we are lucky enough to have a massive wealth of auction experience to draw upon. We have a number of auctioneers who have been consistantly ranked at the top of their game within Australasia. Through this experience and over the time we’ve been doing auctions, our systems have been well drilled and are constantly being fine tuned to enable us to serve our clients the best we can. My advice to sellers interviewing consultants to auction their property would be to ask what experience and recent training have they had. Ask for some proven results.
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Thanks for the feedback Kelly, you’re welcome.
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Hi,
I am “having issues” with the Auction process and am wondering if there is any factual / scientific evidence or statistical information available to support the Pro’s of selling by Auction in NZ.
I would love to believe that the Auction process is the best path, and I think given many assumptions that are often true (like the vendor has a time restriction, becuase they have already puchased, or need to move etc)
…but having seen several auctions that didn’t appear to go so well for the vendor, and given the amount of upside for the Agent in the Auction process and convenience etc…as much as I would like to, I cannot ignore there is a “potential” for conflict of interest in agents advise to use the Auction method. and I say “potential” as I don’t quesiton the ethics of these agents, but we are only human and there are a lot of subconcious behavious that kick in when it comes to selective memory etc.
So… I was hoping there is some statistical information around like % of Auctions that:
1. Don’t sell
2. Sell at reserve
3. Sell at x % above reserve
4. The avg median sale value by Auction vs Listings / Tender for a given time / area etc.
Now I appreciate that this would need to be broken down further into suburb, year / quarter etc…and that there would be a reasonable level of error margin…but I would hope to see some trends emerge to support the auction process where you are not time constrained and want the highest $ etc.
Is there anything like this around?
Oh…I guess in this vane, I am also trying to figure out why so many agents advise that it’s best not to spend any money on the property and that you get a higher price due to the “what if” – post purchase reality etc
Yet at the same time, people all over the world are making huge amounts of money purchasing at Auction, making minor alterations to the property and presentation then selling it again.
I would understand if the advise was “Avg Joe (75% of the pop.), doesn’t do a good job of this, so it’s a high risk, but if you get it right it’s the right thing to do”…but I hear this advise over and over, and I struggle to see how both perspectives can be right.
Regards,
Phil the overthinker….
Hi Phil, I can understand your concerns, some of which I hope are answered in my blog titled Ádvantages of selling by Auction’.
The success of any sale whether it be an auction is influenced by:-
1) The motivation of the buyers and sellers
2) The marketing of the property
3) The property itself
4) The power of your negotiator (sales consultant/auctioneer)
We do record the success rates of selling by auction versus exclusive listings and currently our April 08 – April 09 auctions by my franchise (in Chch) are 76% success of selling by auction versus 48% selling by exclusive (Apr 08-Feb 09). So you can see that selling by auction gives a far greater chance of selling.
Selling by auction is by far the best method BUT only if you have an experienced marketer (sales consultant)of auctions. There are plenty of companies and agents marketing auctions that do not have the training and experience. The no.1 reason why an auction fails is because the marketer hasn’t done the job properly.
With regards to not spending any money on the property with the idea of achieving a greater sale price. This all depends on what you’re looking at doing and whether the work you do will increase the value of the property to get your money back plus a profit. I must admit that 9 times out of 10 my suggestion is not to bother. Some people are very good at enhancing their property without spending too much money but normally there’s no guarantee that the work done will create more profit for the owner.
i agree that selling at auction can be beneficial. Especially in today’s market when speed may be of the essence. A lot of people are financially in trouble finding a cash buyer who can move fast is a major plus on the side of auctions.
It’s a pity that people don’t realize the importance of this information. Thanks for posing it.
> If the property doesn’t have a price on it, you’ve immediately removed their no. 1 target.
I agree, Paul, but that assumes of course that the property sells at auction. At auction, the seller typically sets a reserve. If the property is passed in, the buyer will presumably learn the minimum that the seller wants. In other words, whether it comes down to negotiation, the buyer will have a fair idea what the seller wants. The buyer of course does not have to go to auction but can wait to see if the property is passed in or can simply look at properties where a selling method other than auctions is being used.
Hi Ross,
Thanks very much for your comment. The reserve is never disclosed to anybody. If the property is passed in then obviously, at that given point in time, the sellers want more money than the level the property was passed in at. However, both buyers and sellers (like anybody) can and do change their minds at any time. So post auction negotiations often see a sale achieved whether it’s the seller or buyer change their expectation. If there is no or little bidding, the auctioneer will take a few vendor bids (only ever below the reserve) and the property is passed in well below the reserve/sellers expectations. There are 3 stages to the auction campaign. You can achieve a sale prior to auction by way of a pre-auction offer, you can achieve a sale on auction day, or a sale post auction. From auctions April 08 -April 09 this is our breakdown: 5% sold prior to auction day, 39% sold under the hammer, 37% sold after auction (of which 80% of these are sold within 30 days after the auction), 4 % still available, and 15% have been withdrawn. So effectively 81% of our auction properties have sold and this is opposed to 48% of our exclusive (non auction listings) for the same period. 48% of achieving a sale or 81% with the addition of maximising your chances of achieving a premium sale.
How long have you been blogging…your good at it.
Thanks very much – where do I send the cheque??
I started this blog in July 2009. Glad you’re enjoying it.
Hi Paul,
Currently my partner and I are looking to buy a house and we recently made an offer on a house which was due for sale at auction. The agent told us it was not a simple matter of placing an offer and the vendor accepting, the agent put a contract together with a clause that stated the auction would be moved forward to 48 hours after we signed this contract and our offer would be the starting bid. To me this seems like the vendor is getting the best of both worlds, our offer being made public to any other interested parties with the option of anyone else improving on our offer. The agent told me that the laws relating to auctions had recently changed and this was the way all houses which would have gone to auction have to be sold. Is this correct? I can’t find any laws online which verify this in black and white terms, I feel like we have been taken for a ride!!
Hi Gemma, No, you weren’t taken fotr a ride. However perhaps the procedure should’ve been explained to you when you made your offer, if it hadn’t???
The procedure for a pre-auction offer should be (as instruced by the REINZ):
1) The offer must be unconditional in all respects
2) If the offer is not at an acceptable level then no counter offer is made. It is simply relayed to you that at that given point in time the sellers decline your offer.
3) If it is at an acceptable level, your offer is not signed. The agent then has 48 hours (of which 24 is to be of a working day) to advise other interested parties that a pre-auction offer has been made and is at an acceptable level (the level of the offer should not be dis-closed). Those parties are advised that if there is no further interest, the offer will be signed and dated. If there is interest from any other parties, all parties are advised that the auction will be brought forward. The offer made, is confirmed as the opening bid and the auction then commences.
This is the fairest and best way of dealing with pre-auction offers.
I’m sorry that you feel this way but from what you’ve told me, it sounds like everything has been done as it should’ve.
To be successful at auction it’s quite simple. You need to hold the last bid (above the reserve).
Thanks for that Paul, youve explained it well. The agent did not provide that sort of detail to us when she told us what was going to happen.
.)
What does the statement on the listing then mean when it says the vendor has the right to sell at anytime (before the auction I would assume this means). Does this mean that for every house that has someone who wants to buy before the auction has to go through the above process? It would be good to know for future reference (the auction for the house we have offered on is today
Hi,
We have a very limited budget but would really like to upgrade our house. We were surprised to find out how much real estate fees are and were wondering if it is worth selling our house ourselves.
We are quite keen to try to sell by auction but have no idea how to go about this or what it entails. Is it worthwhile trying to do this ourselves, and what would we need to do? Or would it be better to sell normally, again doing it ourselves to gain the most from our sale.
Thanks for your help
Hi Bronwyn,
You raise common issues for a lot of sellers.
Firstly, selling property yourselves (privately) is fraught with fish-hooks and all sorts of dangers. Now obviously as a professional real estate consultant, I’m always going to say this. However without the time, resources, knowledge, exprience and skills required it is a dangerous concept. I used to do oil changes on my own car many years ago, however, I no longer have the time, resources, knowledge, experience nor the skills to do ths, so I employ a professional mechanic to take care of it. The same goes for financial advice when obtaining a mortgage or even a heart or brain surgeon. I tell you, if I was going in for rain surgery and one surgeon was discounting his service, I wouldn’t use him over a full rate brain surgeon. I would want the best and I’d pay for the best no matter the cost.
Selling by auction is by far the most successful method of selling real estate…IF you employ the best available. You need to contact 2/3 local prominent real estate consultants who have experience in conducting auctions and talk with them. If there is a Harcourts office in your region, they will have the ability to give you all the information you need.
Great questions Bronwyn.
Hi Paul
We will be selling our house at Auction next month. I have heard that we do not have to disclose our reserve price to the Auctioneer or agent and just see how the auction goes. Is this true? And if so, is there any benefit to it? Does it really matter if the auctioneer knows or not? I was wondering if this is so that the auctioneer can keep the bids going without revealing at what point we are “on the market”, therefore getting a higher price.
Thanks, Emily
Hi Emily,
It is my understanding that you don’t have to set a reserve however I don’t believe there is any benefit to you in not setting a reserve. I always advise my sellers to set their reserve way up high above your hope to get price. The reserve is between yourself and your auctioneer – nobody else needs to know your reserve. A good auctioneer will bring you the best bid in the room, giving you the option to declare your property on the market (reached it’s reserve – you may have decided to drop the level of your reserve at the time the auctioneer brings you the best bid). This is where it pays to have the best auctioneer available to you, who’s working for you. Yes you are right, the auctioneer will have a feel of the room and if he feels the need to declare it on the market to keep the bidding going then it may be a benefit to declare it on the market. Sometimes by stalling the momentum and talking with you can be detrimental to extracting those crucial small bids as buyers are satrting to run out of money. Once again, selecting an auctioneer with the right skills is important here. Go to some auctions prior to get the feel of the way they run. If you want the name of a good, skilled auctioneer in your area, please feel free to contact me on 027 276 7047. Really if you are not hiring a highly skilled & experienced auctioneer, sometimes it’s not worth auctioning the property.
Hi Paul
We have a costal section approx an hour from Auckland certral that we are looking to auction in December. All the info on your blog has been really helpful Im just wondering if it applies to auctioning sections as well. i would also love to know is December a good time to hold an auction or would Feb be better after the christmas break. cheers Heather
Indeed, many sections, vacant blocks are sold by auction. December is no problems at all. Whilst I’ve seen good activity in the past the week prior to auction I’d encourage the earlier the better in Dec. All the best, please feel to contact me if you need any further assistance.
Auction is quite good but it still doesnt guarantee a higher prize for your property.
Hi Lexia,
There are only two guarantees in life. Death & Taxes. Find a better way to sell property and let me know what it is. I’d love to debate it.
I am looking at selling my late fathers property. A real estate agent told me the best way to this particular place is by action, even if it does not sell. How long do you advertise a property and market it before the action actually takes place. And does the real estate take a percentage of selling price??
Hi Anita, Thanks for your inquiry.
All properties are different and all sellers are in different situations. However in most instances, if sellers are wanting to find the best buyer in the market place willing to pay the most money, auction is normally the best option. Most Real Estate agencies will charge a percentage of the selling price as their commission fees.