Is having more bidders at an auction really a good thing?

You know that sinking feeling when you follow hundreds of people through an open house and think, “I’ll never get this”?

How about when there are bidders galore at the auction for the house you were determined would be yours, and yours alone?

Researchers at University of Sydney and University of Technology of Sydney school of economics did an experiment to test just how much of a crowd motivates - or demotivates - bidders. They found that having more bidders lowered each individual bidder’s perceived probability of winning.

Associate professor and co-author Agnieszka Tymula told news.com.au it was a “counterintuitive finding”.

“Usually auctioneers would assume that the more bidders there are in an auction, the more money they will make — the logic being that the more bidders there are, the more likely it is that there is a bidder with a high willingness to pay for the good,” she said.

“However, it turns out that there is also a downside to having more bidders — most people bid less.”

Co-author Dr Antonio Rosato of UTS Business School said that the average bid declined by about seven per cent when the number of bidders increased from three to 12.

“When the number of bidders increases, participants experience this lower chance of winning as a loss and this reduces their willingness to pay.”

But real estate agents and auctioneers in New Zealand are sceptical.

Bindi Norwell, Chief Executive at REINZ says: “This is certainly some interesting research, but talking to a number of senior auctioneers from around the country their views and experience in the industry tends to suggest that results are more skewed to the more traditional way of thinking.

“If several people really want to purchase the house up for auction, then that is likely to increase the price it achieves at auction. Additionally, having more registered bidders in the room tends to create more momentum in an auction whereas fewer buyers can mean a far slower pace.

She explains that on auction day, lots of little bids usually result in a higher price than fewer larger bids.

“Whilst there are some similarities between the Australian and New Zealand property markets, the two markets are quite different at the moment in areas such as house price growth, debt levels and housing supply.”

Harcourts Cooper and Co auction director Andrew North would know. With fifteen years’ of honing his craft, the three time winner REINZ National Auctioneers Championships and winner of Australasian Auctioneer Of The Year, says that it comes down to the selling agents’ skills at handling buyer enquiries.

“If I walked into an open home and it was inundated with people, then I’d think I wouldn’t have a chance. But when I turn up on auction day and there are 100 people, say 10 of them bidders, then I’m absolutely fine.”

North reckons there’s a formula for a sales campaign, where around 50 - 80 groups through a property will flush out four or five bidders. Even in the current market, where there are fewer cash buyers and banks are more wary of lending on some properties, a good 25 to 30 people through a home during the campaign will generally yield bidders. Only yesterday, North sold three pout of three houses under the hammer, each with four or five registered bidders and at least two duking it out at the end, for prices between $860,000 and $1.475 million.

“The formula hasn’t changed. With the right marketing and selling story it can all work quite nicely.”

REINZ data show that auctions currently account for 13.2 percent of all sales nationally, down from the national peak in September 2015 of 28 percent.