5. Under the hammer

By VICKI HOLDER, editor Weekend Herald Real Estate

Auctions are the undisputed king of today's real estate scene. Love them or loathe them, the fact is they move property more successfully than any other sales method. In the third instalment of our Real Estate Special Features, we ask whether an auction is right for you.

New Zealanders have long accepted auctions are the best way to get top prices for racehorses and artworks. Yet, until about 5 years ago, there was a common perception properties only went to auction when people were desperate to sell.

Attitudes have changed rapidly. Today, many vendors see auctions as their preferred option. The major real estate agencies point to a huge increase in homes sold through the auction process, at the expense of other methods, particularly in central Auckland areas.


Geraldine Meo, of First National Meo in Ponsonby, says in 1998 auction sales represented 46 per cent of her business, in 1999 they made up 52 per cent and this year they constituted 61 per cent of her sales. On average, this year's auction sales took 21.5 days, and 89.9 per cent of properties sold. During the same period, the sale time on sole-agency listings with no vendor funding for advertising was 47 days and the selling rate was 53 per cent.

Simon Damerell, of Ray White Ponsonby and Remuera, says in the past year, all of his listings have gone to auction. More than 90 per cent of those properties sell before, during or soon after the auction. "In the past 12 months, the number of properties selling through auction has gone up and up. Both buyers and sellers are viewing auctions as more of an honest way to do business. Auctions give a lot more confidence, especially versus a tender. Lots of buyers are more comfortable with auctions."

Harcourt's auctioneer David Clifton says the number of properties sold by auction this year increased 27 per cent over last year. "If you go to auction you have about an 80 per cent chance of your property being sold. The actual period of time your property is on the market is a lot shorter with auctions."

In Stuart Jenner's six central Auckland Harcourts offices, auctions account for more than 70 per cent of business.

Auctioneer Ross Foreman, of Unlimited Potential, says his company sells between 70 and 85 per cent of properties listed through auction. And the "clearance rate" [the rate properties are sold as a result of the auction] is running at around 78.2 per cent. "That's a lot higher than any of the other methods - selling with a fixed price, tender, or private sale."

Bryan Richardson, manager of Bayleys Newmarket, has been successfully selling by auction for 18 years. "At least 80 per cent of our stock is sold by auction. If the vendor has made a decision to sell, then we know they will find a buyer within a 4-week period. We sell about 50 to 60 per cent under the hammer and the balance is negotiated afterwards. We've achieved some wonderful premiums with auctions."

Glenn Baker, of Clear Realty LJ Hooker, Royal Oak, says 75 per cent of his listings are now for sale by auction or tender, compared to 42 per cent five years ago. Properties sold under the hammer vary between 67 per cent and 87 per cent, depending on marketing conditions, though many sales are made post-auction.

The auction process

Vendors should look at what's involved with the various selling methods to ensure they are satisfied before making a final decision.

If vendors choose to sell by auction, they must work with a salesperson who is an expert in the area and has a clear understanding of how the process works. They should also inquire about the auctioneer's experience and skill. It's advisable to go and watch several auctioneers in action. Some are better than others.


Most good auctioneers work closely with salespeople throughout the campaign, assisting them with the marketing, talking to vendors about the market and offering suggestions based on their experience.

The salesperson will discuss the marketing programme, including when it starts and when open homes will be held. He or she will also determine the date and time when the property will go to auction.

Together, the salesperson and vendor will agree on a promotional budget and consider advertising required. The salesperson will organise photography and the text for advertisements and fliers or brochures, as well as booking advertising on the vendor's behalf.

Some agents hold auctions in "rooms," an appropriate space large enough to contain a crowd. Other agents don't have access to an auction facility and hold auctions on-site.

There's a misconception auctions cost the vendor more than selling with a fixed price. But some agents don't charge a fee for this part of the service. Others charge between $200 to $500. A lot of people confuse the marketing that surrounds the auction with the cost of the auction itself.

Although the vendors and the salesperson will have arrived at price expectations as a result of open homes, these are not conveyed to the auctioneer until the day of the auction. The vendor receives regular feedback throughout the campaign about the amount of interest there is in the property, how many bidders there might be and what price range to expect from the auction.

If the marketing campaign has failed to draw interest and there are no likely bidders then the salesperson and vendor must review the campaign and decide why it hasn't attracted bidders. Are the sizes of the advertisements big enough? Does the property need more advertisements?

It's rare, says Ken Ralph, auctioneer for Ray White, Pakuranga, not to get any interest in the property at all. "It's more likely that it hasn't met the owners expectations than the auction system has failed."

If the campaign hasn't identified any cash buyers then the salesperson will cancel the auction and negotiate with the best conditional offers. If all fails, the vendor and salesperson may decide to switch to another selling method.

The big day

Based on the information gathered during the marketing campaign, the vendor and salesperson set the reserve price with the auctioneer just prior to the auction. The vendor signs a form indicating the reserve price and this is given to the auctioneer.

The salesperson will have already spoken to those who have indicated interest in the property and made sure they are aware of how to bid and what will take place during the auction. These people are pointed out to the auctioneer, so he knows where the bids are likely to come from.

During the auction, the auctioneer begins by referring to the Particulars and Conditions of Sale. He will read out the main points to draw to the attention of bidders such things as the address and legal description of the property and the list of chattels included.

Before calling for an opening bid, the auctioneer offers a pictorial preview of the property. The commentary draws attention to the major features and benefits of the property in a final bid to stir the emotions of bidders.

If there is no opening bid, auctioneers do their utmost to coax bidders along. They may have to use the vendor's only bid just to get things started and stimulate other bids.

Once the house has met the reserve price, the auctioneer announces the house is now "on the market."

Then the pressure is on as the auctioneer encourages people to bid competitively. The person with their hand up last buys the property.

Once the property is sold, the auctioneer and purchaser sign the contract the agent has prepared on behalf of the vendor and it becomes an unconditional sale. The purchaser pays a 10 per cent deposit on auction day and settlement is normally in about 30 days.

Solicitors acting for the respective parties will be forwarded a copy of the contract, and will then manage the arrangements to complete the sale on the settlement date.

If the property fails to reach the reserve price, the auctioneer will "pass it in," which means stopping the auction and continuing negotiations with those people who have indicated their interest.

Before, during or after?

The success of an auction campaign is not determined by whether the property sells "under the hammer," but by the amount of interest generated, says Ken Ralph. "In 3 to 4 weeks, vendors know where their property sits in the marketplace and what it is about the property that puts it at a certain pricing level. They know if there's a gap between their expectations and where the market is. If that gap is small we [the auctioneer] can get the job done."

People unfamiliar with the process wrongly determine the success of an auction on whether the property is sold on auction night. In fact, the sale might happen prior to the auction, on the auction day or during negotiations afterwards. Anybody can make a bid, at any stage of the game.

"Auction night is a relatively small part of the auction period," says Ralph. It's the role of the salespeople to convey that kind of information to both vendors and bidders and to help them with the negotiations.

Marian Tolich, auctioneer for Barfoot & Thompson, says the auction process has changed considerably in the last 10 years. Previously, auctioneers would turn up, call the auction and leave. "Now, it's all about allaying fears, telling people about what will happen."


Because many vendors are scared about auctions and auctioneers, Tolich says it's important to talk them through the process. "They see you face to face instead of up on the podium. I make them feel at ease.

"There needs to be education. We need to explain to buyers what to do. Agents need to talk to their bidders about what they should do. Work needs to be done for people to feel comfortable about auctions. People only say they hate them if they don't know what to do. That's a skill we're working on with our salespeople.


"In the auction process itself, we try to extract every last dollar we can. We do that by setting the scene, and giving quite an emotive description of the property. Then I try to use the skills I've learnt at getting bids. There are all sorts of ways - eyeballing people, smiling at them - we all have our different tricks. That's where the auctioneer is really important. But we're not magicians. We can't wave our magic wand. But if the salesperson gets bidders there, I can work it."

Ross Foreman believes the auction process is about empathy and helping people meet realistic expectations. He says all sorts of emotions are involved in buying and selling at auction. One of the biggest motivators is ego and the desire to win something over someone else. "Auctioneers must use their negotiating skills to ensure it is a pleasant experience for everyone."

6. Why auctions work

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