Auctions v Negotiations

[OllyN]

Real estate giants row over worth of auctions
By Lincoln Tan NZ Herald
4:00 AM Tuesday Apr 6, 2010

Two leading real estate firms have gone head to head over whether auctions are a good way to sell houses.
First National - which has about 70 offices nationwide - has released a survey of its members which it says shows auctioning a house is the least effective way of selling.
But Barfoot & Thompson has hit back, saying auctions are a preferred method and have little to do with a successful sale.
link:
http://www.nzherald.co.nz/nz/news/ar...ectid=10636541

I think is a valid subject for discussion. I attended an auction of Barfoot's the other week and only a tiny handful of properties sold under the hammer.
There were mind numbing gaps between bids, if any, and the room had emptied half way through the whole program despite the valiant efforts of the auctioneer and the agents present.

Auctions are great during boom times or where a property is something special. But in a slow market the weakness of the auction process is that it is trying to sell a property to another party at a fixed point in time in the future when the eventual buyer may not be there at that moment- but may be there a few weeks or months later.

Olly Newland
For Totally Independent Advice
www.ollynewland.co.nz

[muppet]

Real estate giants row over worth of auctions

Real estate giants row over worth of auctions

4:00 AM Tuesday Apr 6, 2010

Two leading real estate firms have gone head to head over whether auctions are a good way to sell houses.
First National - which has about 70 offices nationwide - has released a survey of its members which it says shows auctioning a house is the least effective way of selling.
But Barfoot & Thompson has hit back, saying auctions are a preferred method and have little to do with a successful sale.
Meeting the market with a realistic price is far more important than the mode of sale, says Barfoot director Peter Thompson.
"Auction makes people make decisions quicker, and it gives more of a timeline for vendors to know how long their properties will be on the market."
The First National survey asked property agents within the group to rate the effectiveness of selling methods in their regions, and not just their own businesses.
About 72 per cent said individual negotiation between buyer and seller was the most effective, followed by tenders at 18 per cent.
John Stewart, group general manager, said this was because of the current subdued market.
At a time when buyers were scarce, auctions might not be the best way because buyers must be able to buy unconditionally.
Mr Stewart said another agency that took 10 properties straight to auction last month found there was not a single bidder.
First National, which has about 500 sales agents, does a monthly survey to measure key market indicators. It found that while listings were up last month, overall buyer inquiry was lower than February.
"In times like this, where buyers are few and far between, the best price may well come from someone with a home yet to sell rather than from one of the few cashed-up buyers in the market," he said.
Auctions were considered the best method in just five locations - Manurewa, Rotorua, Waiheke, Tauranga and Timaru. However, they were also working well for mortgagee sales, said Mr Stewart.
"Mortgagee sale appears to be ideal for auctions and tenders can provide vendors a multi-offer situation, but mainly we are seeing properties get the best price through skilful individual negotiation."
Mr Thompson disagrees with the findings of the survey.
The real estate group conducts the most property auctions in the Auckland and Northland regions, where auctions continue to be the preferred mode of selling real estate, he says.
"We're averaging 80 to 100 auctions every week, and about 35 to 40 per cent are being sold under the hammer."
Properties which were not sold on the day of the auction were selling in the weeks after, he said, and that brought the numbers of properties sold by the group to between 70 to 75 per cent.
"There are plenty of buyers out there ... there have been many instances in recent weeks where we have been selling properties between $30,000 and $40,000 above the reserve that was set."
The way to sell was to have a realistic price that met the market.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10636541

[Davo36]

At least they're having he debate now. Up until this point, it's all been about how your auction should be run, not whether you should sell in another way.

[drelly]

Auctions, by their nature generally get the lowest price that a buyer is prepared to pay. I wouldn't use one except in a booming market with several interested parties.

[PC]

Auctions have become a favourite with agents because the vendor pays for all the advertising. Apart from the obvious benefit of lots of nice big ads promoting the agency - a great benefit to the agents is having a motivated vendor. A vendor who's paid many $,000s for ads is more serious about selling than your usual pay nothing one.
Plus you don't have to name a selling price to "buy" the exclusive listing.

[Dean@Massiveaction]

Yep right on PC, Auctions are a great revenue generation channel for agencies, that's it. Interesting to note that now it is illegal for the advertisers to pay a cut of fees to agencies they have simply renamed them gifts, so the vendor is no better off than before.

[OllyN]

Hickey's view

From Interest.co- (the comments by readers at the end are interesting)

Have your say: Is an auction the best way to sell your house?
April 6th, 2010 Bernard Hickey
Real estate agency group First National has released a survey for March which it says shows auctions were seen as the least effective way to sell a house. Barfoot and Thompson’s CEO Peter Thompson was, however, quoted in the as defending auctions as the preferred method to sell.

http://www.interest.co.nz/ratesblog/...ll-your-house/

Olly Newland
For Totally Independent Advice

https://www.ollynewland.co.nz

[Xav]

That is still illegal under the Act if it can be proved. The law doesn't care what they choose to call it.

Presuming you know specifics Dean, would you prepared to make a complaint? This is the kind of behaviour that needs to be eliminated if the industry is to improve its image.

[flyernzl]

A tender process would have to be the worst way for a vendor to sell
An auction would have to be the second worst way.

In my view, there would only ever be two situations where a vendor should use either of these methods:
- where (for whatever reason) you really really must sell right now
- where the sale could be subject to a legal challenge as to the sale price obtained (as in, say, the sale of an estate property where several beneficiaries share out the proceeds)

Otherwise - list and wait.

[brokerman]

Auctions, by their nature generally get the lowest price that a buyer is prepared to pay. I wouldn't use one except in a booming market with several interested parties.

Totally agree with you here. Plus of course most Buyers need a mortgage so can't go unconditional on the day anyway.

[Stevegoodey]

Auctions, by their nature generally get the lowest price that a buyer is prepared to pay. I wouldn't use one except in a booming market with several interested parties.

I think that typically auctions get the second best price.
One bidder drops out and the winner takes the property at one bid over that level even if they were willing to pay more.

In a hot market I still prefer a closed tender process.

[drelly]

In a hot market I still prefer a closed tender process.

I've never heard how these work in practice but I guess that with the right buyers it could be great!

[essence]

Having attended many auctions and bidding in several, they are NOT the way for vendors to get the best price.

I've known people to go to auctions with the intent to pay up to $XXXX. The bidding starts, continues, then stalls, gets pushed along by the auctioneer and then finally closes (either Passed In or Sold). Each bidder has a top price (or should have!) that they're not prepared to go over.

In many, many instances the bidder pays LESS THAN their TOP PRICE.

Remember, if you're one of the final bidders at an auction, you only have to top the last bidders price by $1!! to have secured the deal. This is when the auctioneer is "Going, Going, Gone".

If the property has not reached reserve, this enables you to be in the primary position to negotiate.

And remember, at the end of the day, you don't have to buy any property - YOU ONLY WANT TO!!!! Whether it's an investment or a PPOR.

[drelly]

I paid over $30k less at auction than I was prepared to for the house I live in.

[leapy]

The big real estate chains often push their offices to do auctions because at best, they generate publicity and momentum for the company, move properties off the books efficiently, and attract vendor funds for advertising.

However, a reasonable number of buyers in most NZ markets are not prepared to participate in auction situations, so it does preclude a buyer group.

Auctions can and do generate exemplary results on occasion. Every agent who auctions can pull out the 'big catch' stories. But there are a great deal more auction failures than successes right now. Failures serve their purpose for estate agents, because often they demoralise the vendor and prime them to drop their price expectation.

In this information age, it is increasingly possible to prove the assertion that under most market conditions, most auctions produce a lower average price above GV than do sales by negotiation. (This statement would be considered heresy by some real estate agents - so may it generate counter-argument. ) Some companies have better average-sales-price-above-GV outcomes than others. Now imagine if that information was readily publicly available!

I agree with Olly's assessment of the limited circumstances in which auction is the best option.