6. Why auctions work

By VICKI HOLDER, editor Weekend Herald Real Estate

For vendors, auctions offer greater certainty than any other selling method. Vendors are almost assured of getting a positive result within a defined timeframe. They know they will have unconditional cash buyers.


Selwyn Taylor, of Bucklands Beach, sold his home through Ray White. "We've auctioned property 4 times and it's been very successful. We've sold before, during and after the auction. You find your buyer quickly. Auctions suss out buyers because of the sense of urgency. Good property always sells. With a good agent, you get a pretty good gauge of what the property is worth. I felt we got market value. And the auctioneer was very professional."

Mike Hutcheson, of Saatchi & Saatchi, has sold homes through auction many times. "If you are selling by auction, it's nerve-racking but it's finite. At least with an auction you have one or two months - there's a date and BANG it's all over. You don't have to worry about keeping the house tidy every day beyond a certain point. You know the bidders have got their money arranged. At least with auctions, you know they are genuine purchasers."

And unlike the private treaty/fixed price process, auctions avoid having to put an arbitrary figure on a home that may detract prospects from inspections.
Of course, not everybody is completely happy about the way auctions proceed.

Homeowner Carol Whitford wanted more than $700,000 for her home. The auction moved reasonably quickly up to $650,000, then it stopped. "The salesperson advised me to drop my reserve price," she says. "I wouldn't. Then they negotiated privately and the price went up to $690,000. I found the whole auction experience, the way it was staged and the pressure it puts you under incredibly unnerving."

Purchasers like auctions because they know the vendor, who has already paid for marketing, is more likely to be committed to selling.

Jo Barker bought a home recently through Ray White, Ponsonby. "It was a realistic timeframe. I knew I had a couple of weekends. You knew where everyone stood. It's a good way of seeing that people want to sell. They were happy to negotiate. At the auction, I could see the other bidders and what their prices were. I knew what I was up against. It's a much easier way for a buyer to buy."

Says Simon Damerell, of Ray White: "If you're standing in a room with others bidding, it verifies you are paying market level."

Howard Noble bought recently through LJ Hooker Royal Oak. "Initially I was not too rapt in the idea of bidding at auction because of recent publicity. You hear all sorts of horror stories. But it wasn't the case. It was all fair and square. It was a bit nerve-wracking. You don't often spend that amount of money. But at the end of the day we got a fair price, and the vendor got a fair price. We knew the vendor was more than just putting his house on the market. To spend that kind of money with all the advertising, it was pretty obvious he really wanted to sell."

The power of marketing

Linked to the growth of auctions is the growing willingness of vendors to commit to serious marketing as part of the auction campaign.

Says Carey Smith, chief executive of Ray White: "While auctions produce better results, this can nearly single-handedly be put down to the level of marketing and the finite sale day, which is emphasised during a condensed auction marketing programme."

People understand that the limited timeframe of the auction process relies heavily on the ability of the salesperson to quickly gain exposure for the property. Widespread promotion is required to draw as many people as possible through the property to find prospective buyers.

Stuart Jenner, director of Harcourts central Auckland, sees a direct correlation between the size of the advertisement and the number of inquiries. In his marketplace, particularly in Remuera, around 25 per cent of people who buy homes at auction are not even in the market for buying. "Because of their socio-economic group and the flexibility of their finances, they are in a position to buy."

Bayleys national auctioneer John Abbott points out that although the percentage of properties sold by auction across Auckland is increasing, there is still reluctance, particularly in lower socio-economic areas, to commit to auctions because of the money required for advertising.

"But our view is that all properties should be marketed well, whether they are being sold by auction, tender or private treaty. You need a high profile whatever you are selling. It's a common perception that you only advertise when you are selling by auction. It's the agent's job to find the buyer who will pay the most money. So you¹re best to cast the net and find the one who has the hand up last."

Is auction right for you?

Bryan Richardson, manager of Bayleys Newmarket office, says he will auction anything. "It's our preferred method of sale."

Marian Tolich says there are no properties she would steer away from. "Any property is an auction property given the need to sell." She says it's more a case of which vendors are not ready for the commitment the auction process demands.

However, she stresses there are some properties where vendors should not consider anything but auctions. "Any unusual, hard-to-put-a-price-on property such as a fabulous house in an area that's not so great. You might want to get a buyer from out of the area. People don't look for a villa in Panmure, for example, so you try to attract an Ellerslie or Onehunga buyer, someone who loves villas but will compromise on area."

Because of the limited timeframe, auctions are great for people who have bought unconditionally or are on transfer and need to sell by a fixed date, says Tolich.

"They are also good for matrimonial break-ups and deceased estate properties. Nobody can argue about valuations and whether you achieve a fair price.
"They work well for properties with development potential where there are lots of people who want the property."

Vendor bidding

The much-publicised "phantom bid" has given auctions a bad name recently. In all the hype, something quite innocuous and sensible has inspired a fear and loathing it doesn't deserve.

The "phantom bid" is really just the vendor's counter offer. Only one person can make that counter offer for the vendor and they can only make it once. The bid is usually made by either the salesperson or the auctioneer. Contrary to what some people believe, there are never any false bids from people planted in the gathering, says Bryan Richardson. That would be fraudulent.

Agents say vendors have a right to protect the value of their goods with a vendor's bid. That right is spelt out in the auction conditions, and made clear prior to the auction. Vendors can exercise their one bid only up to the reserve price. That's the figure they have agreed they will accept.

Richardson explains further: "For an auction to work, you have to have two bids to raise the offer. If there's only one buyer, you have to have the vendor exercise his bid."

Stuart Jenner says the vendor bid only happens at 20 per cent of auctions, just to start the bidding. "Once it's moving, it's not needed. If required, the auctioneer will tell people when the bid is on the vendor's behalf. We announce it quite clearly. We find the buying public don't mind it because they are looking for guidance as well. If they know it's going on, they are comfortable with it."

The reality is, if you don't feel comfortable with the vendor's bid, go to an agency that doesn't use it. People have a choice. A few companies have done away with it. Mark Thompson says Barfoot & Thompson made the decision about 5 years ago and vendors are pleased. "For some years we were very uncomfortable carrying out a practice that we believe a large proportion of the public didn't understand. In theory, they are told and warned. In theory it's OK. In practice I don't believe the public understand what's going on."

If they don't get bids, Barfoot & Thompson auctioneers either withdraw to negotiate or call for an opening bid. Says Tolich: "We usually have some conditional buyers and can negotiate with them. Auctioneers love to sell under the hammer. It just doesn't feel good to pretend."

GLOSSARY OF AUCTION TERMS

Reserve - The pre-determined figure the vendor has agreed to accept as his or her minimum price at an auction.

On the market - The pricing level beyond which the property will be sold at auction. The auctioneer announces a property is "on the market" to create extra urgency among bidders, who know the property will go to whoever holds their hand up last.

Sold under the hammer - Sold at the fall of the auctioneer's gavel.

Passed in - If the property doesn't reach the vendor's expectations, it is taken out of the auction arena for further negotiation with the highest bidder immediately after the auction.

Phantom/vendor's bid - The vendor's only permissible counter-offer taken up to the reserve price during the auction. It is designed to protect the value of their goods

7. How to choose a real estate agent


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