As 2008 draws to a close the latest property related topic the media are again focusing their doom and gloom stories on is auctions.”House of Horrors” spruiked one recent headline. The subsequent article went on to quote a buyer’s agent as saying “the auction system is dead and a waste of money”.
It would almost be funny if it weren’t being presented to the public as serious news.
It’s true that clearance rates for all methods of sale are down in certain areas. Obviously things are not all rosy with the Australian economy. But the reality is property will still be bought and sold in any market. To write off auction as an effective way to market a property is throwing the baby out with the bathwater.
To prove the value of the auction process when properly executed, the Ray White Group recently compared the “clearance” rate of private treaty properties over the same time period of an average auction campaign in a sample of offices. In all cases auction was found to be a more effective way to sell properties in each key performance indicator - clearance rates, days on market, and price. In some cases, clearance rates were double that of private treaty sales in the equivalent period and total days on market for auction properties were half or even a third that of private treaty.
In a tougher market you have to go out and get the buyers; sticking a “for sale” sign up at the front of a property and releasing dribs and drabs of advertising is highly unlikely to net a good result, much less a speedy one. When an auction program is properly executed, spending whatever marketing dollars are available in a short time frame and in a more aggressive way will reach more active buyers, all at the same time, maximising competition. A program like this brings energy to a property, and energy is the key to a positive outcome, particularly in the current market.
Many agents will say “my vendors don’t like auctions” or “auctions won’t work in my area”. Time and time again statements like these have been proven to have no basis in fact. It’s true that the majority of vendors in an initial meeting will say they don’t want an auction. But realistically, 100% of vendors will also say they don’t want to spend any money on marketing and as agents we obviously wouldn’t just say “OK” to that. It’s all about education.
So why is there such a poor perception of auctions amongst some segments of the marketplace and the real estate industry?
The answer is quite simple - apples are not apples. There are many widespread misconceptions about auctions. By the nature of the statement, anyone who says auctions just don’t work, ever, has not yet gotten a real understanding of how to do them effectively. They may have tried to conduct an auction without a process or a real understanding and end up blaming their inevitable failure on the whole concept.
Auction is a great vehicle to sell a property. But even if you have a Lamborghini in your driveway, you won’t get far without knowing how to drive it. A rock solid process and the understanding of how to use it are the key ingredients to auction success, and if you have both, success you will also have. The proof is in the pudding - it’s no coincidence that virtually all of the top businesses and salespeople in the real estate industry are pro-auctions.
One of the biggest misconceptions about auctions is that not every property is right for auction, that only high end or unique properties should be brought to auction. It’s more correct to say not every agent is right for auction - literally any sort of property can and has been sold under the auction method with good results.
Another common mistake is thinking running an auction campaign is only about getting a sale under the hammer. The focus is definitely to sell on the day but with a well managed campaign, it’s also possible that the property will sell prior to or shortly after auction day.
Importantly, auction is not about setting a price or getting the price the vendor thinks the property is worth. It’s specifically about finding the buyer who is prepared to pay the most in the marketplace at that time and then letting the vendor decide their course of action from there.
One of the biggest limitations of the private treaty method is that when the property is first listed a vendor will often have an unrealistic expectation of price, particularly in the current market. As agents we have an initial obligation to aim for that price. But the price is too ambitious. This leads us to the situation where we take buyers who are ready to buy today to view a property owned by a seller who is not ready to sell today. Ultimately this leads to a vendor rejecting a market value offer. By the time the vendor’s expectations have become more realistic, the all important energy of the first few weeks campaigning have been lost and the price is under pressure from a stagnating market.
In a nutshell, the auction process sets a realistic time frame for sale which is clearly communicated to the market. A well structured and concentrated auction marketing campaign will bring the property to every possible buyer who is active at that time, all at the same time. A skilled agent will then draw the best possible price from buyers via a variety of methods.
A more challenging market presents a unique opportunity. It’s when good agents actually grow their business and their market share. Within the Ray White Group alone the vast majority of top businesses and salespeople are doing more business this year than last - up to 50% more. And almost without exception these top principals and agents are all embracing the auction process.
When you’re looking from the vendor’s perspective, any tactic which is likely to sell their property more quickly for the best possible price in the current market is a good one. And any agent who is competent in the auction method is better able to deliver these things to their vendors, far more so than with the private treaty method.
As one well known industry expert is known to say; “Fix your auctions and you’ll fix your business”!
