Auctions still the way to go

OPINION: When the market changes, as we’ve seen through 2017, one of the firstquestions we’re always asked is, should I still sell via auction?

The short answer is yes. Though it’s clear from recent statistics that notall sellers agree with us: REINZ figuresfor October 2017 show the number of houses sold by auction in New Zealand wasdown 42 per cent on the same period on 2016, with auctions representing 15 percent of all sales nationally. That figure for Auckland is 28 per cent which isalso considerably down on the same time last year.

It is worth noting however that auction numbers were up slightly on September,as some life and movement came back into the market toward the end of the year.

What it all demonstrates is that sellers do not believe auctions aregoing to work for them in a quiet market. I think that is a perception we in thereal estate industry need to do some work to change as it’s doing both buyersand sellers a disservice.

Yes, auctions work well in a busy, heated market. And they tend to getlots of publicity in those times as buyers competing for scarce, highly-soughtafter properties help vendors walk away from auctions with healthy, sometimesincredible, sales results.

But those same principles can be put to work in a cooler market.Auctions have a fixed end date, and for properties that are well marketed they willalways create urgency and competition.

While that fixed date can be an auction’s greatest strength it ispotentially the thing that scares sellers off in a slower market. They may havethe idea that once auction day arrives they will be forced to sell for muchless than intended if there’s less interest in the property than they’d hopedfor.

The crucial thing they should remember is that in an auction campaignthe vendor is always in control.

If the property is passed in they are under no obligation to sell forless than their reserve price. But what the auction process will have done isput them in immediate contact with potential buyers who are motivated to purchasethe home.

Crucially, an auction is also the clearest indicator of where the marketprice for your property is sitting. But again, if you are not happy you do nothave to sell and can go back to the market and try again.

If there is any difference with auction campaigns in a slower market it’sin the preparation before auction day. This is important and should bethoroughly undertaken before any auction, but it is even more so when thingsare quieter.

Talk to your sales consultant about who your target market is, and carefullydesign your campaign accordingly. Make sure you have as much information on theproperty available to potential buyers as possible, so they can be prepared forauction day. Keep in contact with your sales consultant with regard to anyvisitors through open homes and the level of interest they’ve shown, as well asany comments made or questions asked.

This prepares you for the auction, and setting the all-important reserveprice.

Vendors will usually be able to choose their auctioneer from those whowork with the real estate company the vendor is listing with. In an establishedauction-based company the auctioneer will be involved in the sale almost fromthe point of listing, alongside your sales consultant. The vendor can ask tomeet the auctioneer before committing to auction as their method of sale.

The auctioneer should know everything about what the seller’s expectationsare, and be working towards getting them to – and above - that reserve price.If that’s not possible, they will get them in the best position to beginnegotiations with the highest bidder.

In a market where you may have to work a little harder to connect withpotential buyers, all this preparation is vital.

The other misconception out there is that auctions are unsuitable forproperties requiring lots of due diligence - such as a house with no code ofcompliance or that is a former leaky building. I would argue the opposite.

An auction will still work in your favour and be attractive in thisinstance because all potential buyers have the same, known, amount of time toprepare their due diligence ahead of the auction, and it’s less likely they willfeel they can be beaten to the purchase by someone who has their due diligence donemore quickly.

So, is there a situation in which auction wouldn’t be the recommendedmethod of sale? Only if you are not serious about selling your property. Ifyou’re just testing the market and are unsure about selling, auctions areprobably not for you.

In the end selling via auction is not going to miraculously change themarket in your favour, but then neither is selling by any other method. Ifirmly believe that a well-thought-out auction marketing campaign, supported byan auctioneer who is closely involved in every step leading up to the auction,offers most buyers the greatest chance of returning the best result.

Chris Kennedy is CEO of Harcourts NZ