It never ceases to amaze me how much bullshit my industry peddles to consumers. That I think, ultimately harms you as home-sellers.
And today I want to clear something up. Inspired by a video I saw by a pro auction agent entitled “Auction Misconceptions”. I think it should be titled ‘Auction Deceptions”.
You see, he was trying to get around the fact that if your property doesn’t sell at auction – or gets passed in at auction – that it’s labelled a failure.
His statement in reply to that was:
“Definitely not – it definitely creates more interest.”
Well, I’m not sure what universe he lives on? But let’s get back to the real world.
There are two deceptions here I want to clear up, and I hope you think about:
The first is that statement that “Auctions create more interest.”
No, they don’t.
Auctions deplete your buyer pool.
They reduce the number of buyers for your property.
Think about it. We’re not in a massive market here in Timaru. We average about 50 sales per month.
If you break those 50 sales down into price brackets, location, and style of property – it means that for any property for sale at any point in time in Timaru, there’s lucky to be between 3 – 5 genuine potential buyers.
Now, because Auctions are advertised without a clear price indication, research clearly shows (as we pointed out in this recent article):
If you don’t put a price on your property at least half of the buyers won’t even bother looking at it.
So there are at least half of your potential buyers gone.
The next thing:
Of the buyers left, what do you think the chances are that any of them are going to be in an unconditional cashed-up position at the exact date and time of your auction?
I can tell you – it’s very few.
And if there is a buyer or two that are cashed up, very few of them are going to be prepared to bid unconditionally at an Auction – without the opportunity after the fact to do their due diligence.
So what this means is that in the real world:
Auctions reduce your potential buyers that can bid. Fewer buyers mean less competition. Which means less leverage for you as a home-seller. Which can ultimately lead to a lower sale price.
Now, let’s deal with the second part:
The statement that if your property doesn’t sell at auction that it’s supposedly “Not a Failure”.
Well sure, it may not be a total failure. But it definitely damages the perceived value of your property.
Let me explain why.
Imagine you are a buyer, and you’ve seen a property that you love. You want to buy it. It’s perfect for you, but it’s going to auction in two days.
Unfortunately, although you have an offer on your property it’s not quite there. Your sale won’t be unconditional for five working days. So you are not on a position to bid at the auction for the property you wish to buy.
If you were allowed to put your best offer forward today – say in a multiple offer situation – you would gladly offer $600,000 conditional upon your sale going unconditional in just five days.
But because it’s an Auction, you don’t get that opportunity.
So you go alone to the auction tomorrow night – really hoping it doesn’t sell – but you go to see what happens anyway.
Like a lot of Auctions, there is very low bidding if no bidding and you watch the property get passed-in for $550,000.
Has the offer that you were prepared to pay two days ago of $600,000 just increased or decreased?
It’s decreased, right?
Because as a buyer, you are now in a much more powerful negotiation position. You’ve publicly seen that there are no other buyers prepared to pay what you were. And none of them in a stronger position than you. So you are now more likely to come in as a conditional buyer after the failed auction and negotiate harder.
An even worse situation would be if you turn up to the auction and see it sell for $550,000. Which is $50k less than you were prepared to pay.
That would be devastating not only for you but also for the seller of the property. Because if I were the seller, I would prefer to have both of those offers on the table at the same time – the cash offer at $550k and the offer at $600k subject for five working days. I’d rather have the opportunity to consider both of those offers and choose which one I want.
But at the auction, the seller didn’t get that opportunity. They were pressured to accept the $550k on the day and potentially lost out on $50,000.
So the long and the short of this, what are the lessons?
1: Auctions reduce the number of potential buyers for your property. Especially that are likely to willing and able to bid unconditionally on the exact date and time of your auction. Reduced buyer pool means reduced competition and leverage for you as the seller. Which often leads to a lower price.
2: If your property doesn’t sell at auction, it is labelled a ‘Failure’, and it most definitely damages the perceived value of your property in the eyes of other buyers.
Check out episode two of Auction Deceptions for reasons why auctions get lower sale prices.
Also, if you are interested in digging into more in-depth knowledge around the pros and cons of all the different selling methods – check out our ‘Home-Sellers Course’.