THE AUCTION ADVANTAGE – SELLING and BUYING
An auction is a sales process where interested parties make competitive bids to purchase a property in a transparent and public forum. Auction is regarded by many as one of the best methods of establishing true market value.
For both buyers and sellers the biggest advantage of an auction is transparency. Everybody knows the terms and conditions of sale before they start, and bidders or their representatives are on site during the auction bidding in the open.
SELLING BY AUCTION
The auction is designed to attract genuinely interested, cash in hand buyers. These buyers are focused only on establishing the maximum price they are prepared to pay rather than how low their offer should be.
An auction campaign, similar to a tender campaign requires an intensive and wide reaching marketing program, but this is structured and planned to maximise the impact and ensure the broadest reach of prospective purchasers.
- An auction means you set the terms and conditions of sale, mitigating the chances of any surprises at settlement.
- Marketing with no fixed price broadens the pool of cash-in-hand buyers who will look at your property.
- You have a fixed, relatively short marketing period where together we can gauge the level of interest in your property and what prospective buyers might be prepared to pay.
- The auction itself generates a sense of urgency and competition which brings buyers to a decision.
As the vendor you set an undisclosed minimum reserve price just prior to the auction with the benefit of price feedback from the marketing campaign as well as the recent comparable sales in the area to guide you – it is only up to you to be comfortable with the reserve you set and you have the confidence of always knowing that the property will not sell below the reserve that you set.
Buyers bidding at auction do so “unconditionally” as though dealing with cash. This requires genuine buyers to carry out their due diligence inquiries prior to the auction, which genuine buyers see as no obstacle, and ensure that when the hammer falls you know the property is SOLD.
In terms of generating competition, an auction is the most purest platform to do this. Every bid that is made on the auction floor could in ordinary terms represent a real estate agent driving across town to negotiate another price point or several hours of consideration by either party involved.
Bidders in an auction are face to face and the power of the potential of missing out is an extremely powerful motivator.
The Strength Of The Underbidder
It is sometimes said that the bidding in an auction stops once the underbidder stops, and the winning bidder may have paid more, if only the underbidder had been stronger.
This at first glance could be true but the reality is more on the lines that if not for the underbidder the winning bid would have been much lower in the first case.
The bottom line always prevails that if the reserve you set is not met, there is no risk of underselling your property.
Price Marketed Property Vs. Auction
While a price marketed property offers buyers the opportunity to negotiate the purchase price, at auction they will be competing directly against other buyers – not against you as the vendor.
Sometimes this leads to the purchase price becoming secondary to other factors such as individual wants and needs, egos and emotions… and the competitive will to win.
Marketing your property with a price guide can be beneficial in certain circumstances, but it also place a cap on the amount buyers will offer, whereas auction allows that value to be explored without restriction.
During The Campaign
The campaign will for the most part revolve around the online marketing, complemented with print advertising and extensive database mailing throughout our large network of agents. The auction campaign will be conducted over two to three weeks and the focus will be solely to deliver qualified and genuine buyers to the auction.
CAN I SELL PRIOR TO THE AUCTION?
As the vendor you can sell your property prior to the auction. In general terms a buyer could choose to make an offer to you prior to the auction. You may or may not consider the offer to be agreeable. If you do the process would be to call the auction forward, notify all other parties who may be interested and then conduct the auction ahead of time, using the agreeable offer as the opening bid.
BUYING AT AUCTION
Buying at auction avoids the traditional offer/counter offer negotiation process. If your bid is accepted you’ll have the satisfaction of knowing you have purchased at true market value. An auction is an exciting, competitive environment where everything is out in the open. You can see your competitors and keep track of each and every bid.
- An auction means you know exactly who your competition is on the day.
- All buyers are given fair opportunity to buy.
- Negotiations are open for all to see.
- You know you are dealing with sellers who want to sell on the day.
- At the fall of the hammer, the auction is final and your successful bid means the property is yours with no further negotiations, and the contract is signed then and there.
Before The Auction
When you have found the property to suit and it is selling by auction it is important to ensure the sales agent is aware of your interest and how to get hold of you. Sometimes an interested buyer may make an offer prior to auction and the auction date may be changed so you need to make sure you can be notified if this occurs.
You can make a pre-auction offer yourself but it pays to note that for sellers to bring the auction forward they would normally need to believe your offer was a very good one unlikely to be bettered by seeing out the full campaign.
Do You Have to be in a Cash Position to Bid?
The short answer to this is yes, you do. Make sure you carry out all your due diligence prior to the auction to ensure you can bid unconditionally. This means being satisfied with the title, the LIM and builders report and having your finance pre-approved. You also need to have access to funds to pay the 10% deposit on the fall of the hammer.
TIPS FOR BIDDING
Establish a limit you wish to spend and ideally start bidding while the figure is still well below your price range. When you start bidding close to or at your limit, there is little time to build momentum and establish yourself as a serious bidder. Build your presence early!
Bid clearly and promptly, as a last second bid could be missed. Also show the competition you are serious. Place each bid with authority and do it quickly. If others sense you are wavering, they might think the hesitant bid is your last one so they’ll be encouraged to keep going.
Be aware that in the vendors best interests the auctioneer has the right to accept or reject any bids and will also set the bidding increments. When the auctioneer is about to sell they will call three times and if there are no further bids, and the bid is above the vendor set reserve price, knock the hammer down signalling the sale.
If you are successful in the auction you will be asked to immediately sign the auction documents and pay the 10% deposit.
“Passed In” is the term used when the reserve price is not met at auction. This usually means the property will be offered to any other buyers who may have been interested but who were conditional. Remember it is best to bid because even if the reserve is not met the buyer with the highest bid when the property is passed in has the first right to negotiate with the vendor.
What is a Vendor Bid?
The conditions of selling by auction state that the vendor has the right to bid themselves, either through an agent or through the auctioneer. This bid may be used to start the auction or by the auctioneer during the auction to increase the bidding. The auctioneer will disclose all vendor bids and vendor bidding will not be used once the reserve price has been met.
Check Out An Auction Beforehand
When you come to buy your house at auction, you want to ensure you are focused on the progress of the auction itself rather than wondering what is actually taking place. I highly recommend going to an auction where you will not be bidding so you can take note of how the process runs. If you know what is happening and how the auction runs you will be both more competent and confident in your involvement.
For more information on selling or buying at auction or any real estate just get in touch anytime. Corey Watts is a licensed salesperson under the REAA 2008. Available anytime that suits you.
If you are interested to receive any of our latest auction statistics or figures then just send me a message on email@example.com and I will get them out to you
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