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Why do agents love auctions?

Auctions can be a great way to sell your property - who wouldn’t want a room full of eager bidders competing with one another to pay you absolute top dollar. This is how auctions are promoted to you, and they certainly worked well in the boom market of 2020/2021.

But why do agents prefer them? With this sale method, you typically pay an auction fee up front (which commits you to the process); it places a time limit on the marketing period and the number of open homes they need to host , then they get you into a busy room where the level of buyer interest is readily apparent and subtle (sometimes not so subtle) pressure can be applied to reach a deal - either during or immediately after the auction. If there’s competitive bidding and a great sale price achieved - excellent - both the agent and vendor are very pleased indeed so no real cause for concern.

But what if it doesn’t meet the reserve? Or if there are very few (or even no) bidders? This is where the ‘conditioning’ work comes in. You’ll start to hear “sadly the market has spoken and doesn’t see it that high”…..“we have the top bidder here prepared to pay $X - it’s now or never”. Many deflated vendors would sign off on this offer - disappointed but consoling themselves that they at least got top dollar on the day. But did they? What about the people not quite ready to buy on that specific day? Or those that need to sell a house first? Or maybe subject to finance? They perhaps could have paid more and in a quieter market where buyer confidence is weak, a greater proportion of buyers are in fact conditional in some respect. With comparatively fewer buyers present, why narrow the pool even further by rejecting conditional offers?

Furthermore, let’s say you do not complete a deal that day and now list it for sale with an asking price. There is now a very public record that on auction day nobody saw it higher than the top bid or reserve price it was passed in at. This certainly makes it difficult to sell the property for more later.

In the current quieter market, most auctions appear to be attracting few serious bidders; yet some agents are still promoting this method of sale. Of course there are certain situations and properties that are still well suited to auctions - generally for unique properties with high demand and a scarcity of similar properties available. But for most, auctions are in my opinion still being recommended by some agents solely to condition the vendor into lowering their expectations and completing a deal within the agency period - not necessarily because it’s in the vendor’s best interests. If an agent recommends the auction method to you in a quiet market - ask them to show you the most recent auctions results in your suburb and also the bid sheets so you can see the number of active bidders for yourself and the results they have achieved.

In my view, for most (not all) properties in this market, you are better off putting an asking price on it, or at least listing it ‘by negotiation’. This permits the greatest number of potential buyers access to the opportunity - not just cash buyers, but also those conditional on finance or selling a home.

Till next time

Scott Morison, Registered Valuer

NB: who the public typically refer to as an ‘agent’, is actually a ‘salesperson’ under the Real Estate Agents Act 2008. The agent is the one holding an agency license. For readability purposes I use the term agent herein to describe a salesperson.