Cut and pasted from the article on properazzi.co.nz titled “Auctions – the most favoured method of sale or the favourite method of sale by agents?”
Auction – it’s overdone!
Here are a few comments about the auction issue from someone with several decades experience at the real estate coal face who has personally been involved in over 100 auction campaigns.
Firstly auction has it’s place but it appears to be totally overdone by the industry of late. Not all properties are suited to this method and the preponderance of auctions in Auckland is in itself a factor in the failure rate under the hammer.
How many buyers can take time off work week after week to attend auctions in the middle of the working day with no idea of exactly what time the property they are considering will actually be offered on the podium? How much of their precious equity can they afford to have eroded by investigating property after property with no idea if they will successfully secure it?
There may have been 40% of Auckland listings in January marketed as auction properties but it is most likely that only 35% to 60% will actually sell at the auction, if published “success” rates under the hammer during 2012 are any indication.
So why are real estate companies promoting auctions more than ever before?
The line is pushed to potential sellers that for auction to be successful you must spend thousands on a print media marketing campaign in the NZ Herald or Property Press and if you can be convinced to list your home as an auction then the real estate company will have a huge print media profile at the sellers expense over a period of three or four weeks.
It is quite incredible that sellers can be convinced/fooled into spending this money on a print media auction campaign when most if are themselves asked “where do you look for homes when buying?” will state “online”.
Shouldn’t the real estate company at least pay for the proportion of the expensive advert that comprises their own logos and banners?
So how do the real estate companies actually convince their salespeople to sell the auction method so heavily? Simple – pay them perhaps up to DOUBLE what they would receive to list a home as an auction rather than by any other method and maybe also pay them an additional percentage related to the total vendor funded marketing budget they may be able to convince the owner to write a cheque for!
This aspect of financial enrichment will become difficult when changes to the Code of Conduct prescribed by the REAA come into effect on the 8th of April. Under those changes salespeople will be required to disclose what additional financial benefit they will receive if they list a property by one method versus any other method ie Auction vs Exclusive.
See more on this law change at reaa.govt.nz
Of course you will see plenty of articles in the NZ Herald portraying the “popularity” of auction as they have a vested interest in reinforcing this method as it results in approx $5,000 per page in an 90, 100 or maybe 120 page weekend publication – potentially $450,000 or more per week of advertising spend mainly used on these auction campaigns.
If each individual auction marketing campaign is so successful then shouldn’t the salespeople be accumulating such a large pool of buyers from each property previously marketed that they virtually don’t need to advertise the next similar property that comes along in any form of print media. Should they not easily be able to sell using an email to that database of motivated cashed up buyers or just put it online as most buyers will see it there regardless.
There is a false perception from the adverts in print media that “everything” is being sold by the auction method due to most print media real estate adverts now being mainly for auction properties. The line is also pushed that auction results in a shorter sale timeframe of 3 or 4 weeks, when in fact the median days to sell is only 29 days in Auckland across all sale methods combined.
When an auction is used as the marketing method the short negotiation process on the day is handled by the auctioneer therefore the “salesperson” is less of a sales person, more of an open home hostie and advertising copy writer.
Any negotiation involved as the auction is taking place comes down to the pressure cooker five to fifteen minute period when the auctioneer is in control of proceedings. More often than not, in that highly pressured timeframe, the vendor ends up reducing their reserve price and selling for less than they wanted and the final stage of what is known in the industry as the “vendor conditioning process” is completed.
One wonders where this section of the REAA Code of Conduct fits into the picture with regard to the pressure when the auction is taking place: “9.2 A licensee must not engage in any conduct that would put a prospective client, client, or customer under undue or unfair pressure.”
The number of times a buyer of a property at an auction looks elated and says afterwards they would have paid more, had just had it assessed at a higher level by a Registered Valuer etc, etc really makes you wonder who is obtaining the benefit of an auction sale. More often than not it is the buyer!
If it does sell under the hammer it is a fact that the winning bidder usually only ends up paying $500 or $1,000 more than the second bidder at an auction, therefore the second highest bidder becomes the true arbiter of value. Even during auctions auctioneers have been heard to comment to the second highest bidder lines like “sorry sir, looks like you are the arbiter of value”.
Other methods, where the second highest bidder does not have the price they have offered made public, will usually result in the winning offer in a closed negotiation having a much greater margin than at an auction, thereby achieving a better outcome for the seller and deservedly so – it is the seller that pays the commission.
A truly experienced salesperson skilled at negotiation should have the ability to extract more of a premium for their vendor client than would be obtained exposing the property to a public auction in a conveyor belt environment where all offers/bids are publicly exposed.
There were many examples in 2012 of properties being sold at auction in Auckland only to be re-sold a few weeks later using a closed negotiation method or an asking price and achieving +/- $100,000 more. How would you feel, as the original seller, to find your home sold for considerably more just a few weeks later?
Auction eliminates any buyer who could not be cash unconditional on auction day and may have paid more if they had the opportunity to secure the property on a conditional period for a few working days. A subject to sale buyer may actually offer a better price than a cash unconditional buyer and you my only have to wait 3 weeks for that house to sell anyway but pocket significantly more money.
There appears to be a backlash developing with buyers who will no longer look at auction properties and a total sense of relief when they come across a property that either has an asking price or is available to secure on a conditional period. Could it be that a buyer boycott of auctions is underway?
While the Auckland market is white hot sellers will probably continue to be convinced to invest thousands in an auction campaign simply because prices in general are so much higher than they were in the period of recession and the money spent on the campaign is quite minimal in relation to the hefty value increase since 2009.
Will be interesting to see how the auction scene plays out in 2013.
If you are intent on selling your home at auction cut back on the print media spend and increase the online aspect. Hold the auction at the property so that the total focus is only on your home – the fact the bidders are on site will lead to a more powerful emotional impact on those bidders and make sure you hold the auction after 5pm on a weekday or at the weekend outside of the traditional open home window of 12pm to 4pm so buyers can actually attend it.
There is a place for auction – it’s just not suited to every place!
February 15 2013 04:50 pm | Uncategorized