For sheer excitement, you can’t go past an auction when buying or selling property.
Aside from all the advantages (for the buyer and the seller), an auction creates an atmosphere that makes it one of the most recognisable features of the property market.
Selling a property under the hammer can take just a few frenetic minutes in the culmination of many weeks of work on behalf of the buyer and seller.
The focus might be on those final few minutes but the majority of the work takes place in the weeks before an auction and a true auction agent will understand the real power of auction, which is competition. Competition is likely to be greater come auction day and/ or post auction than prior to auction.
According to Ray White Mackay City’s Principal Chris Laval, the three changes you have of buying or selling the property are one of the advantages of auctions.
“You can sell the property before the auction, at the auction, or after the auction,” he said.
“Each opportunity comes with its own unique characteristics so they really are three bites of the cherry.”
Selling your property at auction requires a higher level of expertise and more hard work from your agent.
Selling your home by auction is similar to an exclusive agent listing in that you sign an agreement with an agent for a 60-day period to allow the agent to market the property and you still need to advertise.
The same commission applies if the property is sold during the contract period.
“Effective marketing is essential regardless of the method of sale you decide to go with,” Chris said.
“The more interested buyers you can generate, the better an auction will be. You also have more opportunity to receive offers prior to auction, which can do two things. Firstly, you may sell the property before the auction. Secondly, you receive feedback on what the market may think your property is worth. That can be valuable information for when you set the reserve.”
When auctioning a property, the seller is always in control of the price because they don’t have to set the price until the day the auction and, even then, they can still change it.
During the weeks leading up to the auction, the seller can gauge the value of the property through any written offers generated by the agent during the marketing.
Without an advertised price, today’s educated buyers have the opportunity to express their views of what they feel the property is worth and the agent will present any written offers to the sellers for consideration.
The seller also is in control of the sale because they set the terms for settlement date and can include other conditions in the contract (such as a lease-back option).
“An auction gives the seller full control of their most valuable asset, ” Chris said.
“The seller has greater strength during any negotiation and also have greater strength in the contract because anyone buying at auction has already performed due diligence.
“Auction contracts are not subject to finance so the seller knows the property is sold. When 32% of contracts crash due to finance falling over, it’s good to have that guarantee.”
In Queensland, all auction contract are unconditional and there is no cooling-off period.
Chris said one of the biggest challenges buyers and sellers are faced with in today’s market is that most property are advertised for a lot more than what the market ends up paying.
“People see other properties in their street advertised with a price and they think their property is worth at least that, ” he said.
“It’s only natural people think their property is worth more but they don’t realise that when their neighbourhood properties are sold, most times they are being sold for less than the advertised price.”
An Agent can give potential buyers or sellers data on property sales in the area to build knowledge about value of property.
“Auctions make it much more likely for a property to sell and to sell for the best price available in the market because the property is not marketed based on its owner’s perceived value and price, but more importantly marketed based on its merits and genuine attraction and benefits to the buyer’s needs and wants.”
From the buyer’s perspective, buyers are more and more astute when it comes to buying property and the price buyers pay for a property is more likely to be an accurate reflection of the market so you are less likely to pay more than you should.
A buyer at auction also has a position of power because they are pre-approved for finance and are ready to sign an unconditional contract. Sellers are attracted by a strong pre-qualifed buyer willing to put their money where their mouth is.
Chris said there seemed to be a trend towards auctions in Mackay because they work in any market.
“We are doing a lot of auctions when the market was really hot,” he said. “Auctions were really working in favour of the sellers then because of the incredible competitive atmosphere.
“But we are doing just as many now in a slower market and in this challenging market place buyers aren’t paying unrealistic prices and buyers may still have to compete for a property because they know that it is likely to sell.
Because an auction reveals true market value, we are seeing a lot of properties sell this way.”
Under the hammer
Auctions are most often associated with properties being sold “under the hammer” but properties being sold under the auction process are more often sold outside of the auction room.
Auction clearing rates only paint part of the picture because they only identify properties that sell during those few minutes with the auctioneer.
They don’t include properties that are sold prior to auction or after.
Clearing rates in Queensland are currently around 28%.
According to Ray White Mackay City’s Chris Laval, 80% of auctioned properties were sold within 40days although only 32% were sold under the hammer.
Mackay Real Estate Plus – Property Focus – October 2008