Why Auction?

If I were to ask you ‘how many buyers you think there are for your property in todays market?’… Would you say there’d be 3…? 5…? 7…? or more buyers prepared to pay the money that you’re willing to sell at? For the sake of this exercise, let’s conservatively suggest there would be three buyers for your property. How would you work out which of these three buyers would be prepared to pay the most for your property? Or would you just sell your property to the first buyer to come along who is prepared to pay your price? You see, by listing your property exclusively (with or without a price) and without a proper marketing programme, that is what you’re doing. Would you prefer to sell to the first buyer or the buyer willing to pay you the most money? I believe the best way to achieve a sale to the buyer prepared to pay the most is selling by auction. In this current market buyers believe they have the upper hand and I guess generally that would be a fair assumption. Buyers are wanting to attack the prices on properties and it’s a bit of a frenzy to see who can get the best ‘bargain’. (This is part of the reason there is currently a higher fall-over rate on conditional offers.) If the property doesn’t have a price on it, you’ve immediately removed their no. 1 target. How can they start discounting the property when there’s no price? As auctioneer, Phil McGoldrick recently said, a price only tells buyers what they don’t have to pay. The difference between marketing a property with no price and marketing by auction is that auction imposes a deadline and buyers know that if they have interest in the property, they’d better be at the auction…something is going to happen. One of the major differences between tender (or deadline treaty etc.) and auction is that by tender buyers don’t get to see what their competition (other buyers) is bidding. Auction is public and buyers get to see every move other buyers are making. Buyers will pay more for a property in two instances. When they believe it is worth more and secondly when they see someone else believes it’s worth more. See my other page for the advantages of selling by auction over other sales methods.

As it’s our duty to try and achieve the best possible price within a reasonable amount of time, the best way of ensuring this happens is to market the property for a reasonable period of time to attract every possible buyer in the market. Then give them all the information they need to make their well prepared decisions, put them in a competitive situation and ask them, by way of auction , who’s prepared to pay the most for the property. The advantage to the sellers of investing in a quality auction campaign are:

1) In the current market buyers are not in a rush with exclusive listings. However, by setting a deadline (auction day) they are forced to take action should they wish to be in with a chance of buying the property. By setting the deadline they know that ‘something’ is going to happen.

2) Buyers’ favourite pastime at the moment is to grind the sellers down and insert as many ‘escape’ clauses as possible to protect themselves. Selling by auction takes away their ability to attack the price and insert clauses. At auction sellers set the terms and conditions by which the property will be sold.

3) All auction sales are “CASH” sales or ‘unconditional sales’. There are no conditions such as ‘subject to sale’ clauses. By preparing all the information such as LIM & Title for the prospective buyers, they are able to do all of their due diligence prior to auction, putting them in a CASH position to be able to bid on auction day.

4) You can’t get the pricing wrong.

5) Removes the risk of underselling. Often sellers will take an offer in the first week or so and not have the benefit of being able to put that buyer up against another buyer that may come forward the following week who may be prepared to pay more or push the initial buyer up. Bidders at auction have made an emotional attachment to the property. The fear of loss to another bidder stretches them to the upper limits.

6) Through the larger profile marketing you’re investing in you are attracting interest from a wider range of buyers including passive buyers. Passive buyers are those who are not actually looking but see the property advertised and decide to go and have a nosey look and decide they like it enough to take action. 20,000 Bluebooks are printed every week and delivered to outlets around Christchurch every Wednesday morning. Normally they are all gone in 48 hours or so. There are definitely not 20,000 buyers actively going around open homes in the weekend. But there sure are lot of passive buyers browsing publications like The Bluebook, The Press and internet websites etc.

7) Auction pitches buyer v buyer instead of buyer v seller. When negotiating an exclusive offer, generally the seller is negotiating down from their asking price. With an auction they only go up in price, never down.

8) If the property doesn’t sell prior to auction or on auction day, the third phase of the auction campaign comes into play where unconditional buyers then go into competition against ‘conditional’ buyers. This is why we often see property selling in the hours, days and weeks after the auction.

9) You have a far better chance of achieving a sale by auction. As at April 2009, we at Harcourts Four seasons in Christchurch are achieving 76% success rate of achieving a sale by auction versus 48% success rate by exclusive listings.

10) As a seller you are always in control. You set a reserve which can be adjusted on the day of the auction to meet the highest bidder to achieve a sale. We will always bring you the highest bid and then the seller decides whether to take a big bag of cash or whether they wish to keep the property. On auction day if you achieve a sale, the property is “SOLD”. There are no if’s and buts, no conditions to be met…. Just “SOLD”. These are 10 advantages of selling by auction. There are many more, but these are the main reasons why selling by auction is a massive advantage to sellers than any other method of selling real estate. If you have any questions, I’d love to hear from you.