As a seller, even more so than ever, the most important question to ask yourself is this:
What is the most effective method of sale to take full advantage of this market – so you leverage those competing buyers to fully maximise your sale price?
Unfortunately, I see an increasing number of people recently who seem to believe that an ‘Auction’ is the way to go. Today I’d like to share why it’s not.
In fact If you sell by Auction in this market, you’ll almost certainly sell for less than you could have.
Here is why…
And I’m going to share some real life examples…
But first, a couple very important truths to understand:
Value is an opinion.
What you are prepared to pay can be completely different from the next buyer.
In multiple offer situations, while occasionally offers are close in price, more often than not we see large variations between what different buyers are prepared to pay for the same property. Just last week we saw a difference of $53k between the top & bottom offers.
The buyers are in the market regardless of which agent or method of sale you choose.
Putting your property to market by Auction does not create any more buyers. In fact it reduces them. You’ll have less buyers competing on the day for your property – because not all buyers are in a position to bid unconditionally at your Auction…
Think about this example, where we had a multiple offer situation that came down to the top two offers (both well over asking price). One was totally cash unconditional and the other $15,000 higher but subject to a couple of minor clauses for just 5 working days.
If that property had gone to auction, those higher buyers would not have been able to bid, and the seller would therefore have missed the opportunity to choose which they wanted: Sell right now for less or wait just one week to gain an extra $15,000. That’s over $2,000 per day. If you were selling would you want that choice?
But, putting that last point aside, let’s assume that all buyers are in a cash position. And because “Value is an opinion” they all have a different amount they are prepared to pay…
So we’re back to that all important question:
What is the most effective process to discover the top buyers highest price?
To illustrate this I’m going to share a real example.
The property was put to market for $420,000. That is what the seller was happy to accept. In Auction terms, you could call that the sellers “Reserve”.
There was a total of 6 written offers – In a closed multiple offer situation – where each buyer is required to make their best and final offer in a sealed envelope. There were several offers around the asking price, however, we’ll focus just on the top three.
Top offer = $472,000
Offer 2 = $442,000
Offer 3 = $425,500
And it’s that gap of $30k between the top 2 offers that’s important to understand. Remember: ‘Value is an opinion’
So imagine if we had put that property to Auction…
Those 3 buyers would have turned up prepared to pay those exact same figures if they had too.
During the Auction – as the bidding rose – buyer three would have dropped out around the $425k mark.
Then it would have been just the top two buyers until it reached $442k.
At which point the top buyer would have bid say $443
Now lets say the second best buyer really wanted it and didn’t want to miss out. So in the heat of the moment, in a last ditch effort to secure it, they pushed themselves and bid $445k…
What would the top buyer then bid?
At which point the second best buyer accepts defeat and the property is sold at $446,000
And this is where two dangerously false beliefs about Auctions come from.
You see those watching in the crowd and especially that second best buyer, although they missed out, are given the illusion that the auction process worked – it pushed them over what they were originally prepared to pay.
The second thing is that agent’s use the amount it sold above reserve as so-called proof that Auctions get the highest price.
The reality is that it that top buyer, bought the property for $26,000 less than they were prepared tp pay.
So the main point to remember here is that at Auction, to secure the property, the highest buyer doesn’t need to offer their best price. They only have to place one bid over the second highest buyer.
So although, as a seller, it may appear you’ve got a good price at Auction – you’ve almost certainly sold for less than what the best buyer was prepared to pay.
The most horrific example of this that I’ve personally experienced during my career was back in the early 2000s. We were engaged by a purchaser to bid on their behalf on a section being Auctioned by a different agent at Lake Tekapo.
Long story short, we ended up helping them secure it at auction for $192,000. Which at the time was considered a huge price. The Timaru Herald even ran a story on their front page.
But there was a shocking fact that nobody else knew. We had written authority from the buyer to bid up to $315,000 on their behalf.
Meaning the buyer was prepared to pay $315,000 but secured it at Auction for just $192,000.
That’s $123,000 less than they were prepared to pay. Great for the buyer – massive loss for that seller.
So I hope this has been helpful and opened your eyes as to why Auctions are an almost certain way to sell for less than you could have.
If you have personal experiences with auctions, as either a seller or a buyer, we’d love to hear them.
If you are thinking of selling – would like to discuss your personal situation and smarter ways to ensure you maximise you sale price – especially in this hot market – lets get together for a coffee and a chat.
As well as helping you get the best price, we’ll also show you how you can – at the same time – substantially reduce your selling fees compared to typical real estate commissions. Because after all, it’s how much you end up with that really counts.
You can learn more about how we can help maximise your NET sale proceeds here.
Alternatively, if you are the type of person who likes to do more research and expand your own knowledge, feel free to request a copy of our book: The Profit-Focussed Approach To Sell Your Property… where we dig into more detail on the 3 major steps needed to maximise your net sale proceeds.