Auctions now judged to include pre and post under-the-hammer-sales

by Alistair Helm in


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Some months ago I wrote an article entitled “When is an auction not an auction?” highlighting what I thought was a misleading practice of the reporting of completed auction sales which were not sold under the hammer.

At the time I highlighted the advert published by Barfoot & Thompson which proudly proclaimed “593 Successful Auctions. All in April, all in Auckland, all by one company” That style of advert has continued to be published each month since then confidently stating the number of ‘successful’ auctions as the sum of those sold under the hammer, together with those properties sold pre-auction and those sold post-auction.

That article attracted a couple of encouraging comments supporting my view that the advertising was misleading. Encouraged by these comments and my own sense of principle I decided to file a formal complaint to the Advertising Standards Authority (ASA)  regarding the advert and subsequent adverts.

I filed a complaint stating that under the Rules and Code of Ethics these adverts were misleading and likely to deceive consumers into believing that the number of 'successful' auctions were more than the facts show.

The Complaints Board of the ASA judged that there was a case to answer and the board deliberated over the claim at a session held in August. The outcome of that hearing is now public record and accessible on the ASA website.

The outcome was that the complaint was not upheld

I was disappointed in the findings of the board. I respect the process and the organization. i do not intend to appeal the decision. The complaint is public record and the full decision can be read via a download file of the full written decision, if you are so inclined.

The summary of the decision of the board in not upholding the complaint was that "the advert should be read as a whole and on an objective basis, not only taken on part". That is to say they judged that the full analysis of the sales conducted pre-auction, under the hammer and post-auction were satisfactory to provide explanation to the headline and therefore the headline was not misleading.

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Incentivising agents to list properties for Auction

by Alistair Helm in ,


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The real estate industry keeps telling us that auctions are the best way to sell a property in today’s market. They reiterate that Nationally 20% of properties are sold by auction and in Auckland that number is 40%.

Leaving aside whether those numbers are truly reflective of a successful sale at the fall of a hammer at an auction, there is another side to this Pied-Piper-like behaviour by agents to encourage sellers to choose auctions. It is simple and yet not as well reported as the “success rate”.

Real Estate agents are being financially incentivised to persuade vendors to go for an auction.

I have been provided with information that shows that a real estate agent listing a median priced house in Auckland today could earn an extra $2,000 by gaining the listing as an Auction than as a standard Sale by Negotiation. The extra $2,000 would be in addition to a standard earning of $5,300. That is, in effect a 40% bonus incentive to list a property as an Auction.

Here are the facts.

The sales commission payable by the vendors for a median priced Auckland property today would be $20,528 inc GST based on a $600,000 sale price.

It is likely that on average the real estate company will pocket 40% of this commission ($7,140) and then distribute the balance ($10,710) to the agent or agents involved in the successful sale.

If the agent who lists the property, also successfully sells the property with no other agents acting for or introducing a buyer then the sole agent will pocket the full $10,710.

However, if as does occur especially in larger companies and as a function of the heated property market, buyers are introduced to properties by eager agents, then these agents described as  "selling agents" are entitled to a split of the commission with the listing agent. 

This is where the real estate company leverages that incentive. If you list a property as as a standard 'for sale by negotiation' or as simply a priced property and the subsequent sale involves a separate 'selling agent', then you as the listing agent pick up just 50% of the commission – you take home $5,355, and the selling agent picks up $5,355.

If however you persuade the vendor when you list a property to take it to an Auction sale (or a Tender) then you as the listing agent will receive not 50% of the commission but 70% - allowing you to take home $7,497 with the selling agent getting just $3,213. Therefore as an agent listing a property as an Auction in a way secures you a higher guaranteed income than as a standard listing.

Now there is nothing wrong, illegal or unprofessional with companies providing sales people with incentives to encourage performance or direct outcomes that suit the company – that is human nature and how commerce works and has done for centuries. However when it comes to selling a home there is a deeper principle of conduct that should be paramount above and beyond the personal financial motivation of agents and their bosses. After all their clients as vendors of houses look to agents to advise them on how to sell as vendors are not that aware of the best approach.

That is why the Real Estate Agents Authority, the governing body that oversees, regulates and administers the industry in their latest update to their Code of Conduct specifically included the requirement for agents to disclose to their clients any financial benefit they may receive as a result of a choice in how to sell their house.

Clause 10.5 of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 states:

Before a prospective client signs an agency agreement, the licensee must explain to the prospective client how choices that the prospective client may make about how to sell or otherwise dispose of his or her land or business could impact on the individual benefits that the licensee may receive.

Are agents actively informing vendors when they recommend an Auction that they may be receiving a benefit in recommending this approach to selling? – who knows, it is a legal requirement of all agents to make sure they do.

 


Extreme property marketing forces buyer to front-up to auction in 33 hours!

by Alistair Helm in ,


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Barely 6 weeks ago I wrote an article entitled “Auctions getting out of control in Auckland” in which I highlighted what I saw as a growing trend to shorter selling periods for properties being marketed as auctions by real estate agents. The examples at the time were of campaigns of just 2 weeks, which I described as “dumb and somewhat illogical” and likely to exclude potential buyers from buying such properties.

So imagine my reaction when yesterday I was notified of a property just listed (Wednesday 7th August) which held its one and only open home last night and will be auctioned this afternoon at 4pm. So let’s see, listed at 7am on Wednesday and being auctioned at 4pm on Thursday, a grand total of 33 hours of marketing!

 

I am not sure to be quite honest what to make of this. My first reaction was to check to see if there was a mistake by the agent. No. The dates are genuine.

I contacted the selling agent by email seeking to confirm that the dates were correct and to get more details. I received an automated response email with the sale documents together with the statement “There has been a pre-auction offer at an acceptable level so the auction will open at that figure”.

I am struggling to understand how there can be a pre-auction offer when the property only came onto the market today? Clearly the agent has been marketing the property within a database of buyers prior to its listing. That is perfectly acceptable, but what eludes me is why the agent should imagine that the only buyer should be within the agent’s database of buyers. I might be interested in the property but the agent does not know me?

I do know of properties that are sold by agents that are never listed on the market. This is a decision the vendor makes, however in this situation having listed the property surely the vendor wishes to see the market respond? 

I am speechless. How can this auction process be in the best interests of the seller? How can the agent with all good consciousness and professional integrity state and demonstrate that they have fully marketed the property to as wide an audience to be in the best interests of the vendor when they are allowing a marketing period of barely a day when most campaigns are 3 weeks? Vendors deserve the opportunity to see what comes of a reasonable marketing campaign especially in today’s market where we are constantly told that demand is high and supply low.

In my judgment it is almost impossible for a prospective buyer to be able to prepare themselves to front up at the auction having done the necessary due diligence of title search, LIM report as well as finance. After the all the property details speak to the property being a great opportunity for a first time buyer.

Speaking of the property marketing the description reads “First home buyers or those looking for a project should move quickly”!! – “move quickly”! – from viewing an email on Wednesday morning to bidding at auction 30 hours later - how quickly does the agent expect the average buyer to act?!

I reiterate my statement that this marketing campaign cannot be in the best interests of the vendor, yet that is the ethical and professional responsibility of the agent. Certainly the vendor may be delighted to hear that there is on day 1 an offer at or above their reserve but why should that be the only buyer and why should that buyer’s offer be judged to be the value of the property in the market?

The real estate industry needs to take a good hard look at this situation and ask the question of itself – is this really how we want to be seen by our customers? Driving a culture of panic and hype such that property sells before it has been fairly offered to the market, or does the industry believe that marketing is irrelevant and all prospective buyers should be forced to registered with agents so agents can save on mainstream marketing and merely send emails to interested parties of relevant properties?

Update

The auction was held at 4pm at the offices of Barfoot & Thompson Ponsonby. There were around 20 people crammed into the reception area. I would say that of that total there would be 8 Barfoot & Thompson agents, the balance being potential bidders together with myself and reporter from TV3 Campbell Live.

The auctioneer introduced the auction and in referencing the agents handling the listing she made the comment "if you have been to the property over the last couple of days.." - seems hardly likely give the fact that the property was only listed yesterday!

The auctioneer then made the statement "the property was due to go to auction on the 28th August, but there has been an early offer on the property; that offer is at a level that is acceptable to the vendor, so that today will be the opening bid, its also the reserve price. So basically from the opening bid the property is on the market today". 

The auctioneer then started the auction proper by stating the offer that she was holding was for $1m, that is the opening bid, that's the reserve price, on the market at $1m. 

The auction then ran on for around 5 minutes during which time two parties competed to buy the property. I believe one of those parties was the party who placed the $1m bid and the other couple were unknown. The property sold for $1,050,000 after 6 bids.  

 

 


Frustration with auction process boils over

by Alistair Helm in ,


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With auctions being the most favoured method of sale by real estate agents and close to 1 in 4 of all Auckland properties being sold by auction, the casual observer would think, that was going on in the Auckland property market was a highly efficient representation of a perfectly functioning market.

That may well be the case with many of these property sales. However as was brought to my attention by a recent communication from a highly frustrated buyer; the process of buying at auction can be so fraught with frustration and concern over professional practices that in the case with this specific buyer, it can lead to a decision that enough was enough and they are not going to attend any more auctions in the search for their new home.

I want to highlight the details shared with me by this buyer to bring to the fore questions about auction practices and give voice to this buyer as a process of informing others. Naturally the buyer in question desires to remain anonymous for as they say “We don't want (to make) enemies when trying to purchase our next home. Whilst you may not agree wit the thoughts and beliefs of this buyer or you may not think their circumstances are representative, I would like to say that I have verified the authenticity of the person. I do recognise that this is but one incident from many hundreds of auctions transacted each month, however from my personal experience and comments from others both from within the industry and outside I don’t feel what is voiced here is a completely unique experience.

My intention in bringing this to light is to hopefully to encourage others to share their experiences in alignment or in contrary position to this buyer.

The Story

The buyer states that they have been active in looking for an Auckland property for the past 9 months and by their own judgment they are exhausted.

They attended an auction recently, not their first such auction as they state that they have attended close to 50 auctions and feel that they are a bit depressing.

This buyer was the only bidder on the property and made the first bid. Without any other bidders the auctioneer entered a vendor bid. A follow up bid was made by our buyer. At that point one of the agents in the room went up to a couple in the corner and spoke to them for about 2 minutes while the auction paused. The next action was that this second couple in the corner placed a bid $25k higher. Our buyer recognised this as a competing bid, but there was a concern that there was something slightly suspicious given the length of the pause in the proceedings. Our buyer responded and raised their bid by 10k and the agent went back to converse with the other couple and got them to raise by another 25k.

Then things got very strange. Suddenly 2 other agents swarmed around our buyer and started ‘in our face non stop pressuring’ to raise their bid by another $25k. Our buyer was prepared to bid again but offered a further $10k, not the $25k. The auctioneer refused the bid stating that the minimum was $25k!!

At this point our buyer decided to back down. The auction was passed-in with the other couple not raising their bid.

The actions of the agents as judged by our buyer had caused, what they felt was undue pressure. They felt that the auction had been staged to bring the other couple into the process just to raise the bidding. They felt that the agent’s actions in applying pressure on them was judged to be highly irritating and tantamount to bullying. The property passed-in with the strange couple being the highest bidders who were not then successful in negotiating.

Our buyer felt that there was no other serious interest in the property apart from themselves and in their opinion the other couple were brought in to artificially hike the price, so that the agent could go back to the market and say there were buyers willing to pay $x to buy the house.

To support this view the buyer states that the day before the auction the agent had said they expected 4 active bidders. On the day of the auction in the morning they said there were 3 active bidders. Moments before the auction just as they were going in our buyer again asked how many bidders there were? The agent was in their words coy about it, stated ‘yourselves’ and we expect to see others come in shortly.

After the auction the buyer states that the agent treated them like "you have served your purpose, you took it up to a stage, now I can negotiate with that as a base to the wider market and don't require you, bye". Not even a single thanks for coming to the auction. Our buyer felt the whole process was more about how much more can the agent can squeeze out of them. The whole thing, atmosphere, behaviour and everything about the event just made them cringe and plagued them for the next day before they wrote to me. As they said “I just cannot get yesterday out of my head, it was just bizarre beyond belief”.

The buyer recognised that they had nothing to back up their suspicion other than a gut feeling and the feeling of something not being totally right about the way the auction went. They definitely felt that in that moment they felt trapped, cornered and under pressure to compete against a bidder whom they had a suspicion was not a real bidder (the only other bidder).

What to do? 

The buyer asked me what should they do?

My response was to state that the industry is governed by the Real Estate Agents Authority (REAA) who spell out on their website the procedures open to you to complain about any person involved in real estate. You could complain to the real estate company who held the auction or the REAA direct.

As I read the REAA code of conduct the agents involved in this auction breached clause 9.2 which states "A licensee must not engage in any conduct that would put a prospective client, client or customer under undue or unfair pressure" Certainly from their description I believe that this buyer was put under pressure. I think also the pressure for them to bid by $25k when the auctioneer had accepted a $10k incremental bid by them just before, again could be interpreted as undue pressure.

I think this situation highlights some concerning aspects of the auction process:

  1. The event of an auction is highly charged and highly pressured. Agents defend this in stating that their role is to represent the vendor and seek the highest price, however I think there should be a professional duty of care to ensure that auctions are not unduly pressured affairs and that ‘breathing time’ be allowed. A normal negotiated sale allows buyers and vendors to consider the process and their offer. The auction process has become so mechanized that agencies try and cram 20 auctions into an hour in a packed auction room – is this fair or appropriate?

  2. The manner of agents “circling” bidders to try and illicit bids and to encourage speedy decisions I think is inappropriate.  A bidder should be allowed space and privacy to reflect and consider. If they choose to have professional help then that is fine but agents (all of whom) are on the side of the vendor hustling buyers is not appropriate.

  3. Vendor bids should be eradicated. The purpose of an auction is to in one place and at one time gather together willing buyers to bid in a public and open manner. The interjection of what is called a vendor bid (even if it is publicly announced) is irrelevant at best and massively confusing at worst. If the competitive bidding by the assembled buyers does not see the bidding reach the reserve then the property should be passed-in (allowing recourse to the vendor) – the auctioneer throwing up vendor bids never changes the outcome.

  4. Bidders at an auction should be required to register and be assigned a visible number through which they bid. This would improve professionalism and ensure that the agents and vendor has the benefit of knowing how many active bidders there are and who they are. This component of due-diligence would instantly remove the doubt created as in the scenario outlined above.

The fact is that auctions can be an effective and valuable process for selling real estate as is demonstrated not only in NZ but around the world, however I think that the whole market of auctions has got ahead of itself and as I wrote recently got out of hand, with a sense of a production line fueled by real estate agents seeking to hype the market. A cool head whilst all around them seems to be in heated turmoil would be good to see within the real estate industry – please!