Property musings on Facebook - 3 October

by Alistair Helm in


Here are the articles posted on Facebook over the past week - short, spontaneous insights and observations which I felt needed immediate discussion and didn't warrant long-form articles written.

Auction success is a hot topic again - however it depends how you calculate them


Industry Authority issues warning over 'Quick flick' auctions

by Alistair Helm in ,


REAA.png

It all started earlier this year as the active Auckland property market came alive and auctions became the guaranteed process to sell every property or so it seemed. At the same time as buyers became more desperate agents decided to shorten marketing period from the usual 3 to 4 weeks to a matter of 2 to 3 weeks.

Then of course we had that much publicised  'Quick flick' auction with a marketing campaign of 33 hours roundly defended by the real estate industry.

Whilst the industry locked arms and stated that they were merely responding to the demands of the market and serving the needs of their clients - the sellers of properties, the Real Estate Agents Authority (REAA) in their role as overseers and licensors of the industry reflected on this behaviour and when questioned in the NZ Herald article stated:

That the situation raised "significant concerns".

"The practice is not one that the authority encourages and one that we would strongly urge any vendor or purchaser to take legal advice about prior to entering into," she said.

"From a vendor's perspective, an issue is raised as to whether (they) could receive the best possible result from such a limited marketing campaign.

"For any short marketing or sales programme, the vendor should have been given adequate time to ensure they are well informed about the decisions that are being made and the potential consequence of those."

Over the past month the REAA has reflected further and just this week they have sent out  guidance to all licensees on this issue. In an email sent to the industry last week they stated:

There has been some media attention recently about property’s having very short advertising periods and being sold within days of being listed. While this may be a sign of the times in some markets around the country it does raise some concerns for us. We are concerned that the marketing period may not be long enough to achieve the best results for the vendor and that prospective buyers may not have enough time to do their due diligence and get legal and technical advice. As licensees you must point out these risks to both the seller and the potential buyers, and of course you must continue to meet all of your obligations under the Act and the Code of Conduct.
— Real Estate Agents Authority - Sep 2013 Update

I am pleased to see this communicate from the governing body of the industry. They have not made changes the code of conduct but I see this as a valuable communication especially as they make the point that licensees must consider the needs of buyers to ensure they have the appropriate time to undertake due diligence. Too often we only hear the needs of sellers being expressed by agents.


Auctions – perfect for $million racehorses, so why not for property?

by Alistair Helm in ,


Image courtesy of the New Zealand Bloodstock Limited

Image courtesy of the New Zealand Bloodstock Limited

I was in the middle of a presentation the other day expounding forth on my favourite subject of the limitations of auctions as a process to sell a house when someone politely stopped me and said “How can auctions be so wrong when Sir Patrick Hogan has relies on auctions to buy and sell all of his horses – he can’t be dumb!”

I have to say that question stumped me for a minute, not being a horse race fanatic and having only the vaguest recall who Sir Patrick Hogan was. Rather than answer the question directly, I chose to politely state that I would need to consider the question as there was a valid point being made and it was worth the time to reflect on the comparison between auctions for horses and property.

So for the benefit of the questioner and the wider assembled group here is my response.

Auctions are a highly effective process to sell items for which there is competition, items that are rare and unique. Auctions suit Fine Art, Furniture, Racehorses, Classic Cars and in some cases Property. They also suit the clearance-sale approach where there is a need to complete sales quickly and where the buying audience can be brought together in person or virtually to focus on the sale.

Race Horse auctions are part of events held locally or nationally on an infrequent basis where buyers and sellers and their items for sale can be brought together so that you have the full universe of buyers to ensure the demand is strong and a good supply of items to sell to attract a wide audience of buyers. Imagine how inefficient it would be if instead of a quarterly Race Horse auction you had an individual auction at each stud every day – buyers would need to spend all their time driving around. So event based auctions suit horse sales in the same way as Sotheby’s and Christie’s auctions suit Fine Art.

So then why is it that I contend that auctions are not the perfect solution for selling property?

Well clearly you cannot aggregate all the properties in the market and sell them at events every couple of months – property marketing is time-bound, people want to sell today, or this week, they cannot wait until the end of next month for an auction. Despite this there have been some attempts by some of the real estate companies to create “Big Auctions” – I cannot for the life of me see the value in this. Auctions for houses need to be unique events where the potential buyers are placed in a position where they champion one another for the right to buy the house using price as the weapon.

This leads me to another aspect of real estate auctions which I think is not appropriate. The weekly auction room sale, where each week a collection of a dozen or more homes are auctioned in a sterile meeting room. Buyers are told the auction will start at 2pm but who know when they will get to lot 7?

Why is it in today’s world when real estate agents charge commissions of over $20,000 to sell an Auckland house can they not afford to hold an auction for a property at a set time and place (at the property) – why do such auctions have to be crammed into what is akin to a sale year – for whose benefit? clearly the real estate companies derived massive economies of scale - one auctioneer 20 properties in half a day's work!

So accepting that property auctions should be unique events held at the property at the very least thereby ensuring the buyers are not intimidated by random strangers jostling all around them, who are simply sitting round for a later auction, what is still so wrong with auctioning property?

The truth is there is nothing wrong with auctioning property. My primary concern is that it is seen as the nirvana of property sales process. It has its merits and its disadvantages. To provide some clarity here is my summation of the pro's and con's of auctions for property:

Auctions pros and cons.png

A lot of my antagonism about auctions is driven by the recent trend of real estate agents blindly and with what I regard as blatant disregard to the needs of vendors, pushing every sale as an auction and in the frenetic desire to sell more houses more quickly, and in the process reducing marketing lead times to days rather than weeks, thereby driving panic amongst buyers who fail to undertake satisfactory due diligence. 

Property is a significant purchase decision and should be allowed to be reflected upon as a serious purchase decision. Please let us bring some sanity and pragmatism into the process as otherwise those who may get burnt in today's market may hold a grudge against the real estate industry when the market quietens down - which is what will happen in the coming years. 

 


Auctions – the most favoured method of sale or the favourite method of sale by agents?

by Alistair Helm in ,


iStock_000009029079XSmall.jpg

Just a month ago I reported with what I described as a mix of disbelief and surprise that auctions had become such a popular method of sale for property in Auckland.

Based on the data at the time, the proportion of all property sales represented by auctions had risen steadily through the final months of last year to represent 39% of Auckland sales in November and 37% in December. Auckland being the nucleus of auctions, accounting for fully 3 out of every 4 auctions in the country.

So you can imagine my surprise to see this new report by released by REINZ showing that in January, Auckland auctions totaled just 330 from a total sales of 1,757 – just 19% - effectively halving the representation of this method of sale in the space of one month.

Why have auctions fallen from popularity.png

So has the real estate industry gone from advocating this form of marketing to rejecting it?  Is that we are to take away from this data. There are many encouraging online articles eloquently advocating auctions as the most preferred method of sale written by agents, yet somehow right before our eyes, auctions seem to have fallen out of favour?

Or could there be another reason?

January is of course a holiday month, blessed with good weather and public holidays-a-plenty. As a function of this there are less agents actively working, less auctioneers available to call auctions, and as a consequence less auctions scheduled.

What is so compelling though is that despite this reduced capacity to facilitate this most recommended method of property sale by auction, property sales did not stop or in any way stumble in the first month of the New Year. In fact despite the lack of auctions in January, total property sales in January in Auckland were up 24% as compared to January last year, this was higher than the 21% year-on-year increase seen in December.

I guess the concrete proof of this hypothesis or the rejection of it; will best be judged in the February stats when released in a month’s time to see if the proportion of auctions in Auckland remains below 20% or powers back up to 40%?


The great Auction debate!

by Alistair Helm in ,


Transient

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 market.

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 able bidders.

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 country.

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 auction.

  1. 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 the documents
  2. 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.
  3. 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 bid.
  4. 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.