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.
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.
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.
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.
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.
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.
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
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.
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.