Should you consider auctioning your house? Unless you are in a hurry to sell, the answer in the vast majority of cases is ‘No’. For a starter, you would be limiting prospective purchasers to only those who have the total cash required to purchase it ready at hand. Since with auctions run by real estate agencies purchasers are required to confirm final bids with a non-refundable 10% deposit, auctions cut out all those potential buyers who would have to sell another house before they could buy yours, and it turns away all those people who would need to have assurance of finance from a bank before they could start bidding.

Banks don’t approve loans for houses before they can get an estimated value on the houses they are about to lend money on. Of course, one could ‘fork out’ several hundred dollars for a registered valuation before the auction took place and take it to the bank so that the bank might guarantee a loan beforehand if a successful bid was equal to or below the estimated value. But if you were not successful in winning the auction, the price you paid for the valuation would be money down the drain.

It is common for real estate sales people to try to talk vendors into selling by auction, but this is mainly because it favours the auctioneers more than the vendors. First of all, it is usually a condition of a contract to auction that the agency be given a three-month sole agency so that if the property doesn’t sell at the auction, nobody else, including the vendor, will be able to sell it during that three-month period without the agency getting the full commission.

Second, it is usual for the vendor to pay for all of the auction adverts whether the property sells or not. What’s more, generally a large proportion of such adverts are focused on emphasising the name of the agency plus a photo of the salesperson that listed the property. So the agency gets free advertising even if the property doesn’t sell.

Many agencies claim that 90% of properties that are auctioned sell. But what they seldom tell you is that most of these properties don’t sell at the actual auction. Most of them sell after the auction by negotiation when vendors, having been unsuccessful in getting the reserved price they hoped to get at the auction, have been conditioned to accept less than they anticipated.

Another reason properties put up for auction eventually sell within the three month period is that most of these vendors are motivated by an urgency factor. Some need to get an unconditional offer on their property because they need the money to buy another property, some vendors are in a hurry to sell because they are going overseas, and many, in fact a very large proportion of the properties sold at auctions are mortgage sales.

Often, properties have already been on the market for several months before owners have been persuaded to auction them. Then if the auction bids don’t reach the price hoped for and no acceptable offers have been made in the subsequent weeks, salespeople can use this fact to influence vendors to drop their asking price. To be fair, all too often vendors expect to get far in excess of what their properties are worth, so it could be sound advice to drop the asking price. But in such cases the sale will be due to reducing the amount of money that the vendors originally sought rather than because the property was put up for auction.

When to auction
Not withstanding what I have written above, there are times when auctioning can be recommended. This is when properties are at the high end of the market, have features that are unusual and their values cannot be easily compared with other properties that have recently been sold in the area. This particularly applies to architecturally designed homes and properties with spectacular views. When no set price is placed on a property, buyers tend to focus on the desirable aspects of the property rather than on the price. Then emotions come into play. Some people might have set their hearts on acquiring a property, and as long as somebody is bidding against them, they feel that they are not being foolish if they bid just that little bit higher than the other person. What is more, when people get emotionally attached to a property, they hate to lose.

I experienced an auction where a property being sold with a rateable value of $475,000 was up for sale. With three keen bidders vying for it, it finally sold for $615,000. It transpired that the vendors, who were moving to another city, would have accepted $520,000. So, yes, for certain properties, auctioning can be the best way to fetch a premium price. Usually, people who bid on properties at the high end of the market have fewer problems than the more common first homebuyers with having the necessary purchasing power to back up a bid with a 10% deposit.

But take note; although most house auctions are carried out through Real estate companies where the vendor is required to pay a commission to the agency, plus marketing costs, plus the fee for the auctioneer; any licensed auctioneer could auction your property for you without your having to have a contract with a real estate company.

Auctioning is a sensible action to take when a property is not moving and the vendors want to leave the country and need to finalise the sale of their house before leaving. If the vendor is prepared to accept the highest offer no matter what it is, it is likely to result in a quick sale, but it is unlikely to fetch as much as it might otherwise would if given enough time to sell.

Auctioning a normal type of property where the market value can be reasonably easily assessed in comparison with other similar properties in the area that have recently been sold is a waste of money. This is why few people sell by this method.

Attendance at auctions
Attendances at auctions can be very misleading, especially when the company handling the auction is auctioning several properties at the same time. Agencies prefer to auction several properties at once so that there is more likelihood of there being a larger attendance at the auction. This is one reason why the auctions are seldom held at the property itself. If only two or three prospective purchasers turn up it can be very off putting.

Seeing a number of people in attendance at an auction in the real estate company’s office rooms can give vendors the impression that there are a considerable number of people interested in their property. However, only a handful of those in attendance are likely to be there because they are interested in your property. A large proportion of those in attendance will be there because of their interest in the other properties.

A good proportion of the crowd will also be made up of the company’s salespeople who will be encouraged to attend in order to build up the numbers. On top of that, a good number of the group will be made up of speculators who have come along not with the intention of buying a house to live in but in the hope of getting a bargain that they can sell off at a profit.

The less interest shown in a property before the auction takes place, the more speculators there are likely to attend because the salespeople would have tipped them off that interest is low. Therefore speculators might get the property at a snip. Let’s never forget that sales people only get commissions on properties that are sold.

It is better for the salesperson to receive a commission on a property that is sold below true value than not to receive a commission at all.