The property market (in Auckland at least)
is running hot, so the reports of late have focused on the extent to which
auctions are the preferred means of selling a property. The report from REINZ
for September stated that 37% of Auckland properties were sold by auction.
The question I want to ask (and answer) is
whether auction is the right selling method?
Firstly there is a difference between 'auctions' as a selling method and 'property sold at auction'. Today there are
1,428 of the 9,329 Auckland properties on the market being marketed as
auctions. That is just 15% of all property on the market in the region. That would imply that auction properties are selling at over twice the rate of non-auctions!? - not quite.
Not all of these properties currently being marketed as auctions will eventually go to auction, and
equally not all of them will “sell-under-the-hammer”, however from my
experience and attendance at various auctions there seems to be a reporting of
all property sales which were marketed as auctions being defined as
sold-by-auction in the data regardless whether the sale was pre the auction, at
the auction or after the auction.
Lets look at the pros and cons of auctions.
In making this evaluation I have taken the viewpoint of a property owner
reviewing the method of sale with an agent in order to provide this opinion.
In favour of an auction
An auction is a theatrical event, the
opportunity for the real estate industry to showcase their skills in their
natural setting. It is an event that forces buyers to be exposed to the worst
of the emotional rollercoaster associated with the “heart vs head” property
buying decision. As a seller you should be delighted to hear this!
As a vendor it brings the property sale
process to a finite point where the “market” has to make the decision – is
there someone out there who is prepared to buy this house at an acceptable
price?. This finite-time sale period is great for focusing the marketing
activity to generate maximum interest and standout of the property in the
Auctions enforce an unconditional legal
sale at the fall of the hammer (if the property is ‘on-the-market’ with the
reserve price achieved) this ensures certainty for sellers looking to be able
to make a purchase decision on their next house.
An auction has the ability to hype the
selling price as the emotional event of the auction can lead to aggressive and
highly competitive bidding if the property can attract sufficient willing and
Against an auction
An auction can exclude a certain segment of
buyers who are unable to be in a position to bid, they may not have the
necessary deposit or the financial pre-approval. They may also be excluded as
they have other conditions which are not able to be a part of a bidding process.
An auction is a very public spectacle that
can have the effect of bringing your property sale process crashing back down
to earth if (a) nobody bids, or (b) the bidding falls short of the reserve. The
buyer community attending such an auction are very aware of what the ‘market’
has stated in regard to the property and can use that to its advantage.
Once you have chosen the auction as a path
to marketing your property, you have played that card and have to accept that
you cannot re-play it. The next move is withdraw the property or market it as a
normal property for sale.
On balance I am not fond of auctions.
In my view an auction most favours the
selling agent as the process drives a specific time-bound event that seeks an
outcome that drives an unconditional sale and this is what delivers income for
agents. To be clear I am not saying that agents are so single minded in driving
auctions that they omit the primary requirements of service and presentation, I
just believe there is a vested interest.
As stated, an auction allows the agent to
create a theatrical event that showcases their skills and builds their brand
presence within their target audience.
Auctions tend to suit property sales in
higher density areas of the country; that being the reason why Auckland sees the
vast majority of auctions across the country. As of today there are 2,539 properties being marketed as auctions across the country, 56% of which are in Auckland. I did read once an academic paper
that stated that auctions don’t work (from a purely theoretical psychological
perspective) unless you have an urban population of at least 800,000 to create
the competitive tension to fuel an auction.
Auctions tend to work best in markets that
are seeing strong demand and limited supply – the classic territory of a
seller’s market; as we are currently experiencing in certain areas of the
Auctions tend to work to favour property
around the median price for the area as there tend to be more buyers for these
properties. That is not to say high priced property don’t perform well at
auction however the key is a strong and active buyer pool, who are in the
financial situation to be able to bid.
There are a couple of personal pieces of
advice I would offer if you are a buyer forced to participate in a forthcoming
- Flag your interest in the property early
with the agent. You will not loose any negotiating position but will ensure you
are kept informed should circumstances change and also allow you time to review
- Negotiate the deposit in advance of the
auction – you can request that the vendor enter an agreement to allow you to
bid based on a lower deposit. A Seller would rather have an extra bidder who is
paying 5% deposit as opposed to 10% than no bidder at all.
- On the same note try and negotiate any
other conditions you would like, the one I like is a different settlement date.
Get these agreed in a signed side agreement that allows you more flexibility to
- Be in control at the auction, a friendly agent
offering advice is not working for you unless you are paying them – they are
being paid / motivated by the vendor. Their objective in offering you advice is firstly a sale and
secondly a higher price. If you want a professional to work for you to manage
the auction to your benefit pay an agent yourself – nothing of value comes for free.