Auction warnings: Don't be cute, and don't expect 50% price reductions

The slowdown in the housing market and reports of house price drops will likely raise buyers’ hopes of walking away with a bargain.

However, property experts say buyers are likely to miss out altogether if they fail to read what’s actually happening in the country’s auction rooms.

Figures from Real Estate Institute of New Zealand show that auction sales accounted for 22% of all property sales last month, down from 28.4% in February last year.

In some auction rooms in Auckland, clearance rates have tumbled to below 50%, leaving the door open for buyers.

Harcourts New Zealand auction manager Aaron Davis said new buyers shouldn’t make the mistake of sitting quiet in the auction room in the hope that their desired property will pass in.

“My advice is don’t be cute, don’t fall into the same mistakes as other people and don’t go ‘I'll wait to put in an offer’,” Davis said.

He said that while the market was weighted in buyers’ favour, he was still seeing bidders sitting back at auctions.

“People are living in fear that the market is going to drop, they perceive it is softening, but trying to pick the market - that’s a rookie error. Do the opposite of everyone else.”

He advised interested buyers to jump in quickly if the property they are after passes in at auction.

“Put an offer in immediately. Speed is always your friend,” he said

Marian Tolich, auctioneer for Barfoot & Thompson, advised buyers to prepare themselves by watching auctions online to get a feel for the market.

Bidding past the bank's pre-approved value for a house is high risk and can trigger some un-planned consequences. Photo / Getty Images

For good market intel, they should watch the properties that sell and the ones that pass in, and how quickly they get priced post-auction and sell.

“Even if there are no registered bidders, we always go ahead and call the auction, as someone watching online could spot a property they’d not looked at before,” she said.

Ray White Mount Eden owner Jared Cooksley said that for motivated buyers, fewer bidders attending auctions was a good thing.

“If you turn up an auction and there’s only one or two people, there’s no competition so you’re in a good position to start negotiating,” he said.

“The majority of properties post-auction will go to a multi-offer situation, like a tender, so if you can step in before that, that’s your advantage.”

Ray White national auctioneer John Bowring was also puzzled as to why motivated buyers were holding back. “Back in September you had 10 other buyers nagging at your shoulder, now you’re the only buyer,” he said.

“They hated 10 buyers, now they hate being the only one. There’s no competition, you’re not up against others and paying $400,000 more than you should have.”

If a property passes in at auction, the auctioneer may declare an asking price for conditional buyers who couldn't bid. Photo / Fiona Goodall

But, he added, it’s a common fallacy that the highest bidder at an auction had the exclusive right to negotiate if a property passes in.

“That’s only if the vendor chooses to, or they could pass it in and negotiate with everybody,” he said.

“Generally, if that last bid is really close, they will negotiate. But if there are lots of buyers, they might just pass in and put an asking price on straight away.”

Like all the experts, Bowring said buyers shouldn’t bother trying to figure out the market cycle.

“You only know it was at the top, or the bottom, after the fact. You’re buying and selling in the same market, so it’s the same difference.”

Barfoot & Thompson auctioneer Murray Smith agreed. “Now when the fights are not on is a great opportunity to buy. But don’t expect to have 50% Boxing Day sale-type reductions. Vendors will sharpen their price, but not that sharp,” he said.

Lesley Harris, from the First Home Buyers Club, said that the slowdown would be good news for buyers who shelled out multiple times for inspections and valuations and still missed out.

“We’re seeing more price by negotiation, or priced properties. A lot of those have passed in at auction, and we’re also noticing prices that drop over time.

“That’s better for buyers. It’s how the market used to be. Hopefully the tide has turned.”

Mortgage Lab founder Rupert Gough strongly urges buyers not to get carried away, especially in a cooling market.

“If you bid beyond the number pre-approved by your bank, you run some very high risks.”

Bidding 10% more than that approved amount – even if Mum and Dad are kicking in that extra $30,000 in the heat of the auction – will trigger a registered valuation request from the bank.

“The bank’s approved amount is based on a desk valuation. If you go over that amount by 10%, they’ll want to know if it’s worth that crazy high.

“That could take two weeks and costs money. And in this market the registered valuation maybe less than the approved amount. Last year, it didn’t matter, as wait two weeks and the value would have gone up. Not now.

“That leaves you having to find that money – and that fall of the hammer means you’ve bought it.”