when an auction is a bad idea?

[AThousandHills]

As I understand it, auctions are best when good demand and interest is obvious.

One agent is recommending I auction my land because, he belives, it is the best way to determine its worth. How true is that statement, considering the property is in a slow growth area in country NSW?

Early this year the same agent auctioned my grandparents house and the only bid was the opening bid--they ended up losing about $100k from bad publicity after the failing auction, and owing huge auction fees which amounted to nothing.

Why should agents know an auction is bad advice for the vendor?

 

[Bandita]

Hi AThousandHills,

I think the choice of going to auction or not would completely depend on the area. For instance - inner Melbourne suburbs - the majority go to auction, and they do well. Most buyers expect auctions, are prepared for them, and happy to go the auction route to secure the property.

But in slow growth country NSW? With the outcome of your grandparents house, sounds like a no. But, it may be the agent put on a very bad advertising campaign? How are the majority of other properties sold in the area? Can you get a couple of other agents in to see what their preferred method of sale is? May give you a better idea of the way to go.

Good luck!

Cheers,
Jen

 

[Xenia]

The scenario with your grandparents property is likely to be repeated with yours if it goes ahead.

To recomend an auction for low demand real estate is just nuts! I can't believe that he is recommending it!

The best way to determine what it's worth is to do a comparative market analysis within a 5 Km search. That takes some effort on the part of the agent, they have to actually DO something!!

If he can't do it, your money would be better spent on a valuer to determine worth. Definately not an auction!!!

 

[Twitch]

Auctions work well for desirable properties in high demand areas. It doesn't seem to be a wise choice then for your grandparents property.

 

[jrc]

At the risk of sounding obvious - the agent stuffed up your grandparents and you now want to give him the opportunity to stuff you up.

For auction you need to consider what is unique about your land. Is it the only block left to build on with 360 degree water views that can never be built out? Or is it one of 20 blocks of land on the market or potentially that are all in the same street?

If you want to determine its worth get a proper valuation. Valuers are constantly coming out to smaller towns because banks etc require valuations on houses. Get some quotes from the different valuers. They will give you comparatives.

If you want to be cheaper buy the APM report on that postcode and do some legwork and work out your own value.

If it's a low growth area I would not auction.

 

[TheCamel]

also, you say your grandparents had to pay hefty auction fees.

I'd consider a clause in the contract between yourself and the agent, stating if it fails to sell at auction, then you pay no fees for the auction.

 

[Timmy]

If you want to sell your property at a fixed price, you only need one interested buyer (at that price). But if you want to sell your property at auction, you will need at least two interested buyers (because only having one interested buyer will not push the price up).

And remember, "its true worth" is simply whatever someone wants to pay for it on the day.

 

[leapyeah]

Auctions often shortchange the vendor in lukewarm markets.

Agents will sometimes suggest them because it's easier than doing the hard yards of research for comparative sales and trends. And they also suggest them because some real estate brands and bosses push their staff to auction because that's the company or corporate policy, regardless of appropriateness to a specific market or property.

At the end of the day, it's a big build-up and an even bigger letdown if the auction fails, and vendors often buckle in despair after that failure and accept a price worse than they would have been likely to get by going with private treaty in the first place.

 

[Jacque]

One agent is recommending I auction my land because, he belives, it is the best way to determine its worth. How true is that statement, considering the property is in a slow growth area in country NSW?

Fastest way to see if an auction is suitable for this particular property (or piece of land, in this case) is to ask the agent to substantiate his claim. What other comparable blocks has he sold this way, for more than he believes he could have got them via private treaty?

 

[Jase H]

I agree with Timmy's comments.

At best you will only ever get the 2nd best price from an auction sale. This is because the buyer never need disclose their maximum buy limit and generally they are buying below it. This means you will get the 2nd highest bidders maximum buy limit plus a small amount extra for the winning bidder.

Agents often pressure/hard sell sellers to go to auction as auctions help advertise agencies more than they advertise properties. They are also an effective technique used by agents to 'condition' sellers.

I recommend use read anything by Neil Jenman and his views on auctions before considering this selling method.


Jase H

 

[asdf]

Have a read of Neil Jenman's book - Don't sign anything. Terry Ryder also has one - How to sell without agents or something like that.

Granted in a bullish market, prices often go for beyond expectations but not in a slow market like NSW. Make the agents work for their money. They have been getting away with it for years. Many would auction off your kids if you let them. I see disappointed vendors all the time. In the last 5 auctions I attended, property was passed in and a few only had the sole vendor's bid. But take comfort, you have just paid for a few suited clowns to put on a good afternoon of entertainment though.

 

[AThousandHills]

Thankyou all SO much for those comments and very good suggestions. I won't be doing an auction, and I won't be using this particular agent given his poor advice and awful history.

This was classic, jrc:

At the risk of sounding obvious - the agent stuffed up your grandparents and you now want to give him the opportunity to stuff you up.

 

[Kevin Hockey]

If you really want to understand what an agent is trying to do when they provide advice begin to look at it from their perspective. Auctions are primarily about agents and the benefit for them. High VPA (vendor paid advertising), high exposure to generate more buyers and therefore sellers, more pressure upon owners to force decisions they may not have previously made and in some cases higher commissions paid to salespeople (offices pay salespeople higher comms for a sole agreement than open listing and more for an auction than a sole agreement, in some instances) are all reasons agents will recommend an auction.

Even in a slow market, agents will recommend auctions because it applies pressure on the owner and provides the agent better opportunity to "condition" the vendor. They use ridiculously high claims of clearance rates to attract homeowners and sale prices inflated by agent badgering to attract low reserve prices.

Not all Auctions are bad or misrepresented and not all agents who use auctions are using it for the reasons I've described. The fun for owners is working out the facts.

An auction used at the right time and for the right property can be a perfect option for an owner to sell their home, but this doesn't sound like one of those occasions. But if you want to understand an agent you need to think beyond the sale of just your property and understand they need to sell many homes to make a living.

Kev
www.gogecko.com.au