Auctions are once again dominating the Auckland market

by Alistair Helm in ,


Earlier this year there were signs that auctions had lost their lustre, but examining the past 7 days of new listings coming onto the market in Auckland shows that close to half of all new listings are being marketed as auctions!

Here are the facts - between September 22nd and today (the 29th), 808 properties have been listed across the Auckland region from data on Realestate.co.nz. Of this total 400 are being marketed as an Auction. Over the month of September a total 1,113 properties on the market today are marketed as auctions which represents 43% of the total of properties listed in the month. Of course properties listed in the first week of September with a 3 week campaign will now most likely be sold, thereby explaining the difference between the c. 50% in the past 7 days and 43% for the past month.

Clearly auctions are the hot topics and the most favoured method of sale.

But as ever the question should be asked as to the success of auctions. However when it comes to the success of auctions, this is where interpretation of figures becomes something of an art form!

Last week there were a couple of media articles which showcased auction performance.

The NZ Herald on Saturday examined the Barfoot & Thompson auction in the city office and stated that they sat through 27 auctions of which 11 sold under the hammer with 10 passing in below reserve and 6 with no bids - a 41% success rate. The article went on to quote Peter Thompson reporting a 55% success rate - this number being the total of 11 sales plus a further 9 properties which had sold prior to auction. Now you can see why reporting on auction success is an art form!

The article quoted Harcourts saying that at a Christchurch auction in the week there were 23 sold from 25 presented at the Harcourts Grenadier offices in the city. Across the city another Harcourts office (Gold) reported selling 10 from 15 under the hammer.

Now none of these figures will surprise as circumstances at every auction event will be very different and so will be the outcome. However in my mind the key matter in reporting auction success is simply this. Success is defined as how many properties of those offered at ann auction event are sold under the hammer or at least within the next working day as is now the defined period under the Fair Trading Act. It is not relevant or appropriate to add to this list properties sold before the event (even if they were sold at an auction) nor properties that sold outside of this defined new time period.

I applaud Barfoot & Thompson who have embraced this new law change in their publicity of auction performance as they now simply detail (i) sold under the hammer (ii) sold prior (iii) sold by 5pm next working day to arrive at total auctions. However they have ceased to detail total passed in as they used to do.

I have been keeping a record of these monthly reports from Barfoot & Thompson for the past 18 months and as you can see they provide a vital snapshot of the Auckland market (accepting for some months of no data).

t the peak of the property cycle back in first half of 2013 Barfoot &Thompson were reporting property sold under the hammer (plus on the day) consistently exceeded 40% of all monthly sales. Through the first half of 2014 this had fallen to less than a third in March and May, although April was incredibly active and successful. The last two months though have seen a fall off. It will be interesting to see the September results.

Looking outside of Barfoot & Thompson and the Auckland market the REINZ data of auction sales is the most reliable. I would have to qualify that statement though by saying that the data of auction sale has no clear definition. I would hesitate to guess that it simply relates to the sale of properties which were listed as being an auction irrespective of how the sale  was concluded. 

The data for the past 3 full years shows this interesting trend based on the first 8 months in total for each of the past 3 years.

 

Auckland auctions rose significantly between 2012 and 2013 (27% to 37%) before easing off this year, however the focus of auctions has certainly spread outside of Auckland where now the proportion of sales represented by properties marketed as auctions has risen consistently to now represent 8.5% of the total sales outside of Auckland (equivalent to 1 in 12) in the first 8 months of this year.

It certainly appears that auctions are once again the most preferred method of sale for Auckland agents and a growing number outside of Auckland.


Law change will effect the reporting of auction sales data

by Alistair Helm in


Auctions continue to be favoured by the real estate industry as an effective and efficient method of sale. In the past 12 months according to REINZ data a total of 15,865 properties were sold by auction representing over 1 in 5 of all property sales. In Auckland the numbers are far higher with over that same period 38% of all sales being by auction.

However underlying this data may be a correction “waiting in the wings” which may well have a significant impact on these numbers.

With effect from the 17th June 2014 an amendment to the Fair Trading Act as it applies to Buying and Selling at Auction comes into effect. The specific amendment that most interested me was this:

The Fair Trading Act auction rules treat the property as being sold at auction if it is unsold at the end of the auction but the auctioneer accepts within one working day of the auction an offer from a consumer who attended the auction.
— Fair Trading Act : Auctions in Action

I have long held the view that an auction sale should be defined only by the sale occurring on the fall of a the hammer, however the real estate industry continues to hold the view that a property brought to market as an auction and subsequently sold irrespective of when it sells - sometimes up to 7 days later is considered an auction sale.

It was only last week when Peter Thompson of Barfoot & Thompson made this statement in the monthly report of sales for May:

Vendors are still choosing auction as their preferred method to go to market. The success rate at auction is around 80 percent within a seven day period. This is because we are experiencing a trend towards properties that are passed in at auction either selling later the same day or within seven days of the auction

Next month such a comment would be judged to be misleading and inaccurate under the terms of reference of the Fair Trading Act. This advert for April auction results might well present a somewhat different picture.

This move will bring the reporting of auction results much more in line with Australia which publishes 'clearance rates' weekly within 24hrs and judges an auction solely by the fall of the hammer.

A further implication of the amendment is that once the working day period has passed then the transaction will no longer be considered an auction and therefore the use of the Auction Sale & Purchase Agreement will cease to be appropriate as the property becomes open for offers by private treaty between the vendors agent and the prospective buyer. This is of importance for buyers to appreciate as the purchase terms and conditions need to be re-stated on a new S&P Agreement.


Auctions are getting out of control in Auckland

by Alistair Helm in


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The latest data from the May property market as reported by REINZ states that of all sales in Auckland; 38% “went under the hammer” – up from 28% a year ago, outside of Auckland auctions are also on the rise albeit off a smaller base up from 7% of all sales a year ago to 9% in May.

The comments within the real estate industry as expressed by Harcourts Northern regional manager support these rises saying “Sellers are wising up on the benefits of auctions – higher prices with less fuss”! She went on to say “sales by auctions had shorter and more thorough marketing campaigns that limited ‘stress periods’ for vendors

Sounds perfect – less stress, less fuss, higher prices!

The fact is, not only are auctions becoming more the norm, they are also being compressed into a shorter marketing period, which in my view is dumb and somewhat illogical.

Take the data for today (13th June) – in Auckland 185 new properties came onto the market. A pretty normal day, although Thursday’s tend to be busier (a hangover from the days when this is when the property magazines used to publish the weekly selection). Of these 185 properties; 98 (53%) were auctions, with 28% being marketed with a price and the balance for sale ‘By Negotiation’.

More than half of all new listings today are being marketed by the auction method of sale.

However when analysing the auction date for all of the 98 auctions, what I found even more alarming is that nearly two thirds of those new auction listings have an auction date of 3 week or less from today. A staggering 1 in 12 have an auction date before the end of June, with one providing only 9 working days between listing and auction.

 

Akl auction periods are being shortened.png

Making the process of selling your house a rushed and truncated process is sure to do one thing – spook buyers.

Buyers who are already pulling their hair out trying to bid on houses with so little time to do undertake due diligence. As to the claim made by Harcourts Northern regional manager of ‘higher prices’. This is a claim that can never be truly substantiated, there is never a ‘control’ benchmark for houses; they are all unique in form, location and circumstances; measuring against CV is misleading as that is proven to be a poor benchmark.

So real estate agents who are paid a commission by sellers and who have the sole interests of sellers at heart, are constantly pushing auctions. Nowadays as the supply constraints grow larger these agents are choosing to recommend shortening the selling period. In my view this can only drive more potential bidders / buyers from the market, rather than as they hope, bring more buyers together to bid up the price.

Just imagine this scenario played out by an Auckland couple who are in the market ready to buy.

This young couple have been looking at buying a house for over 6 months, they constantly hear tales of super-heated property market and having already lost out on an auction or two already, stress levels are high! They get an email alert today for a property which meets their criteria. They review and decide to view at the weekend, they can’t do Saturday as they are away, so they attend on Sunday. They like the property a lot, but the auction is on the 3rd July, just 13 working days away. Now normally they would go back to view again the property on the second weekend before deciding if they are keen, but they realize the urgency. So they talk to their bank next Tuesday who show support for the price they think they can bid to, however the bank tells they will need a registered valuation.
The couple pause – they don’t want to spend another $600 for a valuation – after all they have only seen the property for 12 minutes so far!
They decide to wait until a second viewing at the weekend which goes well; so on Monday 24th June they decide to get a valuation. The valuer though says he cannot fit them in until Friday the 28th (just 3 working days from the auction). The next question is should they do a building inspection? – left with just 6 working days they decide to forgoe this, although they do request a LIM through their lawyer.
Days go by and the weekend of the 29th / 30th lets them see the property a third time, but with no real idea of the condition or what the valuer says he will value it at. By Monday pulling their hair out and loosing sleep, the valuer delivers the valuation placing the property at a value just below the level they had hoped based on their loan to value ratio. However all is not lost. One of the parents has said that if they needed they would lend them $30,000 to help if they needed it. They call up on Monday night to literally plead for help, however the access to the money is not available due to the money being on a term deposit. Whilst they could have bid at the auction and as they find out later with that $30,000 they would have been able to buy the property; they just gave up - totally frustrated on Wednesday night, instead of celebrating their new home, they drown their sorrows, vowing to give up on buying a house - they have a guts full!
(Note this is a scenario of a couple who are renting and don’t have a place to sell, just imagine the compounding issues if they had that property to sell, scraping together the cash deposit and then the panic about selling their own house).

So another prospective buyer fails to present themselves to the seller, unbeknownst to the agent. How many buyers are being squeezed out of the market by such circumstances? Equally how many buyers are buying without due diligence? This could be a dangerous long-term issue especially if there tuen out to be structural issues with the house.

Agents may well like short notice auctions. They may well get a sale and thereby service the vendor in a shorter period (this is clearly their idea of reducing 'stress') it certainly meets their needs as they get paid sooner with less work. Let's not forget that an auction requires less work by the selling agent around the process of facilitation and negotiation, the auctioneer actually does the negotiation at the auction.

Finally what about that claim about auctions provide 'more thorough marketing campaigns'? Auction marketing is no different to any other form of property marketing, except for the date of sale and the word ‘auction’ in the marketing material and of course the cost of the auctioneer. Properties all get loaded onto Trade Me and Realestate.co.nz in the same way and promoted online the same way regardless of the chosen form of sale. Arguably and perversely the shorter auction period is further reducing the relevancy of print advertising, as lead-times for print are measured in days rather than the seconds it takes to get a property online.

Auctions are undoubtedly the favoured method of sale by agents, this they detail to vendors citing the data of 38% of all Auckland sales being by auction, but beware of these number as sometimes what is reported as an auction was not a true auction sale. However the vendors should be more wary; they actually end up undertaking a sub-optimal marketing of their property by going for an auction or worse a short notice auction. They may actually end up eliminating buyers and thereby reduce demand for their house.

The underlying problem is that this situation in today's market not become transparent as due tot he current demand as long as they get just 2 bidders at the auction the property may well sell; but the question has to be asked, was money left on the table?

In my view marketing a property needs to be focused process undertaken with consideration. It should be undertaken with an appropriate period of time. Sufficient enough to allow prospective buyers to satisfy themselves of the property, undertake due diligence and approach the sale in a clear-headed manner. That period is probably between 3 and 4 weeks. I think a fixed date of sale is appropriate in fact I think there should almost be a sell-by-date. I favour tenders as a method of sale - it achieves the same outcome as an auction without all the hype, razzmatazz and undue very public pressure!  

Whilst on this topic it is relevant to reference the analysis undertaken by highly regarded ecomomists and authors of Freakonomics Stephen Dubner and Steven Levitt who, when analysing the sales of agents homes in the US (as the video below shows) and found that agents marketed their homes for longer; 10 days longer than their clients' homes, and they ended up getting a better price. Makes you think!

 


Auctions dominate the market in Auckland

by Alistair Helm in ,


Auction iStock_000010524733Small.jpg

I read with interest the latest REINZ property data for sales in December with a mix of surprise and disbelief this week - focused on this statement:

“A key development during 2012 has been the growth in sales by auction, with the number of properties sold by auction growing by more than two-thirds compared to 2011.  The growth in auction sales has been particularly strong in Auckland where almost two of every five sales are now by auction.  The trend in auctions is evidence of the continued tightness of some parts of the residential real estate market where demand is increasing, but supply remains constrained.”

Total sales by auction growing by more than 66% and in Auckland 40% of sales as auctions!

REINZ auction sales data to Dec 2012.jpg

I found these numbers surprising and somewhat hard to believe. The REINZ has only recently been reporting sales by pricing type and I wondered if their data was inaccurate. The reason for my concern was prior data reported by Realestate.co.nz of earlier in 2012.

At the last period of reporting being March 2012, the number of new listings marketed as auctions was 13% nationally and 24% in Auckland. The data as presented below also showing the make up of auctions a year earlier in March 2011 by region of the country.

Could the representation of auctions in the marketing of property in Auckland have really risen from 24% in March to over 40% in December?

Unfortunately I do not have access to the data warehouse of Realestate.co.nz but the website does provide an easy way of counting listings by date and also by price type. Analysis of the numbers for just new listings coming onto the market over the first 17 days of January is quiet surprising in my mind.

Across the country in 17 days of the 3,621 new listings, just under 1 in 5 (673) were marketed as auctions, in the case of Auckland 424 properties were marketed as auctions out of 1,069 new listings - 40%.

New listings by price type Jan 2013.jpg

I am amazed at the extent to which auctions have taken off in the past year in Auckland, going from 1 in 4 of new listings in March 2012 to 2 out of 5 just 10 months later. Clearly the market is far more dynamic and property is selling fast and as a consequence agents are recommending this method of sale - the REINZ data is bang on, auctions are a key development in the NZ property market.