Going going gone. Auctions are how we imagine properties selling and many do change hands just as they do on The Block.
The advantage of auctions is that you pit buyers against each other in a competitive environment, says Daniel Coulson, national residential manager and head of auctions at Bayleys. In a hot market it’s an efficient way to sell New Zealand real estate.
The auction costs around $500 to $1,000 over and above other costs to sell a home. On the day, however, auctioneers can sometimes push bidders just that little bit further to achieve the best price possible.
Different strategies for different markets
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Auctioneers use different strategies in different markets. In a hot market there are multiple bidders and bidding should reach the reserve price without bidders being chivvied along.
Auctions can work as well in a cooler market. A good auctioneer can coax even a single bidder up to the reserve sometimes, says Coulson. Or they might stop mid auction, find out from the buyer what the maximum price is they’re willing to pay and present that to the vendor.
Playing the room
Your auctioneer’s role on the day is to manage the auction. He or she will outline the terms and conditions of the sale and describe the property. Once the auctioneer opens the bidding it’s his or her job to take bids, encourage bidders to enter or up their bid, and ideally sell for higher than the reserve price.
Auctioneers can also use vendor bids says Kevin Lampen-Smith, chief executive of the Real Estate Authority. That’s a bid on behalf of the seller, providing the reserve price hasn’t been met and the bid is clearly identified.
A good auctioneer creates scarcity and can manipulate how bidders think and bid. Auctioneers are well aware of behavioural economics concepts and use them to their advantage. They can speed the auction up and create excitement or slow it down to give bidders time to consider their strategy.
A nail biting time
Auctions of houses for sale can be very nerve wracking for sellers. Make sure you’re prepared and you have communicated with the auctioneer about your reserve price, the bidding increments, and other issues such as vendor bids. Usually vendors aren’t in the room, but will be kept up-to-date by agency staff as the auction progresses.
What if it doesn’t sell?
It is always possible that your home doesn’t sell under the hammer. Even if bids don’t reach the reserve, the property will often sell a few hours or days later. Typically the auctioneer will negotiate with the highest bidder, although he/she can open the negotiation with the other bidders as well, says Coulson.
If the bidders won’t play ball, then other negotiations may follow. The listing agent will know other buyers who may be interested, but couldn’t bid because they were unable to buy unconditionally on the day. Not everyone is a cash buyer. These potential buyers may need to get finance, a building report, or even sell their own home.
