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SELLING A HOUSE AT AUCTION OVERVIEW

By Trish Willis | Member of the Property Institute of NZ (IPAC)

Before agreeing to sell your house at auction, you should find out the real estate company's auction success rate, how much auction fees are, how to set a reserve sale price, what the rules for bidding on the day are and campaign timeframes.

House auctions are designed to create buyer competition but in 2023 the percentage of properties selling under the hammer has reduced, with fewer bidders. But for some vendors, auctions can still be the favoured option depending on your location, the type of property you are selling and the valuation, so don't discount selling a house at auction altogether. Just be informed.

There are other methods of sale available if selling your house by auction is not your preference including tender, deadline sale, by negotiation and buyer enquiry over. Real estate agents are obliged to explain all these to you prior to signing an agency agreement to list your property for sale.

Scrutinising real estate appraisals is all part of the process and we have produced an appraisal checklist list to help with this.

Get a free list of vetted real estate agents from Agent Finder NZ to make sure you find the best agent

HOW DOES A REAL ESTATE AUCTION WORK?

Auctions are fast paced, public property sales.

Buyers register interest in advance and attend on auction day to bid on the property which can be onsite or in the real estate company auction room. Absent bidders use their own agents to represent them using auction apps or phone.

Usually, when selling a property by auction you set a reserve price below which you can refuse to sell. Only you, your agent and the auctioneer know what the reserve price is.

Once the winning bid has been confirmed the sale is legally binding.

COST OF SELLING A HOUSE AT AUCTION

Besides real estate commission fees and advertising costs, there is also the auctioneer’s fee.

The cost of selling a house at auction varies but can range from $400 and $1200 (for the auctioneer). Some real estate companies don't charge an auction fee at all.

Prior to signing any agency agreement to list your property, all real estate fees should be itemised and approved by you - no surprises.

Get an indication of your likely real estate commission and fees here.

What sets real estate agencies apart?

AUCTION SUCCESS RELIES ON AGENT COMPETENCE

The success of selling a house at auction is heavily reliant on your choice of real estate agent and company, the auctioneer, their experience, competence and ability to guide you through the auction process with integrity.

Live Auctions More Common

Many house auctions are done live online using video calls or other platforms which has resulted in many properties being sold site-unseen to ex-pats returning to New Zealand to live or people living out of the district and unable to travel.

Reliable Communication

Property auctions can be stressful and disconcerting so good communication by your real estate agent needs to be present throughout, from the time you sign an agreement to list to having a game plan in place if the property is passed in at the auction right through to settlement.

Buyer engagement

Real estate agents may work with several buyers from near or far who have registered interest, making sure they are prepared and keeping them engaged through to auction day. Agents should give you regular updates about buyers including post-viewings.

Fostering buyer competition

In the advent of a pre-auction offer, real estate agents should skillfully use it to foster competition among the other buyers.

Confident negotiator if passed in

Often vendors end up in negotiations with a buyer post auction after the property is passed in when the reserve price had not been met. Your real estate agent needs to be a confident negotiator, especially important for selling top end homes where hundreds of thousands of dollars can be at stake.

PROPERTY MARKETING PRIOR TO AUCTION

Before auction day there is a period of marketing aimed at attracting buyers and allowing them to view your property.

Heightened marketing: The success of your auction can be largely dependent on how strong your marketing campaign is. Your real estate agent should talk to you in detail about the marketing plan before it goes live.

Valuation: Getting a full valuation by a registered property valuer can be helpful to both you in knowing what the reserve price should be and to the auctioneer for guidance on auction day.

Open homes or private viewings: 2-3 open home days are held to help market your home. If you prefer private viewings over open homes, discuss and agree your preference with your real estate agent prior to signing off your marketing plan.

Managing buyer interest: Prospective buyers usually register their interest with your real estate agent and receive a property auction pack which covers property marketing information along with the sale and purchase agreement and terms and conditions.

WHAT YOU NEED TO KNOW ABOUT HOUSE AUCTIONS

Pressure to auction: People can feel pressured by a real estate agent to sell by auction. Agents are required to explain all methods of sale and most will make a recommendation.
The sale and purchase contract: There are special sale and purchase agreements for selling by auction.
Pre-auction offers: Buyers can make an offer before the auction if the vendor wants this. However, this should be indicated in the advertising, for instance “unless sold prior.”
Sole Agency: Sole agency agreements are best for auctions.
Price range: Have a price range in mind – your best-case scenario, your still acceptable price and the price that might not thrill you but you’ll take it. Keep it close to your chest.
Change of mind: If you decide not to auction your house, you can change your mind but best to do so prior to commencing any advertising. You may have to cover any costs if you back out too late. If you have already signed an agency agreement you should also make any changes in writing for both parties to amend the method of sale and re-sign. Make sure you keep a signed copy.
Phone bidding: Bids can be phoned in and buyers tend to be more comfortable with this than prior to Covid which was predominantly in-house.
Bid increases: The auctioneer can set the amount by which bids should increase.
Post auction negotiation: If the property doesn’t sell at auction a sale price can be negotiated afterwards.

Communication: Prior to auction day, your real estate agent should be in regular contact, keeping you up to date with buyer interest, any issues and the state of the property market.
Due diligence: Intending bidders do their due diligence before auction day including building inspections and finance approval. A real estate agent should help guide them to do this and on time.
The reserve price: The reserve price is usually set just before auction day. It is kept confidential between yourself, your agent and your auctioneer. We recommend you have a support person with you when setting the reserve and to advise your property lawyer.
The auctioneer: Auctioneers should be introduced to you and your property, understand its features and know how much buyer interest there is. They will want to know about things like building inspections and water tightness and should discuss the reserve price with you prior to the auction.
Auction day: If you can, you should attend the auction to answer any last minute questions on things like variations to the settlement date and the deposit amount. The auctioneer may want to consult with you on your wishes if bidding stops before the reserve. You have options such as lowering the reserve.
Vendor bids: The auctioneer can use vendor bidding to start the auction or get movement toward the reserve price. These can be made either by the auctioneer or real estate agent. They must be clearly identified as vendor bids by the auctioneer and are only allowed if the property has a reserve price and that hasn’t yet been reached. For more information see the legal section below.

AUCTION TIME FRAMES

Marketing time frame: Properties are advertised on average for 3-6 weeks before auction day. This is usually determined by the property type you are selling such as a luxury home you are wanting to attract international buyers for, a lifestyle block or a development-zoned property in Auckland.

The most common timeframe for marketing a residential property is around four weeks.

Auction day brought forward: If you receive a pre-auction offer and are happy with it, the auction day can be brought forward. Such an offer would become the new reserve price and becomes the first bid at auction.

Auction cancelation: House auctions can be cancelled if a sale and purchase agreement is signed following a pre-auction offer.

Auction day final bid: Buyers may arrive early to look through the property again. The auction starts when the auctioneer calls for an opening bid and ends with the ‘Call Down’ in which the auctioneer will generally offer the property to the highest bidder three times. The auctioneer calls ‘for the third and final time’ and then announces that the property is ‘SOLD’.

People can bid at any time during the call down.

Negotiation bid: If the property fails to sell it is “passed in”. The sale can continue through negotiation with a buyer either on the day or in the following days with many sales completed within 24-48 hours.

legal obligations in the auction room

Illegal bidding: It is illegal to use dummy or shill bids to persuade genuine bidders to raise their bid. This is when people who appear to be genuine are bidding on behalf of the seller. Vendor bids can be placed by the auctioneer or real estate agent to move bidding toward the reserve price but must be clearly identified as such.

Terms and conditions: The auctioneer will read them aloud before the auction and announce the reserve price.

Other legal matters: No matter the method of sale, selling property is a legal transaction and real estate agents need to understand a range of legal issues including the Anti-Money Laundering Act. They need to adhere to their Code of Conduct and follow the law.

Failure to complete: If for some reason either the vendor or buyer can't complete the sale, it will become a legal matter. Always consult with your lawyer prior to an auction.

Wise Up NZ Awarded Most Reputable Property Advice Hub NZ 2021

Page updated March 21, 2023 by Trish Willis | Member of Property Institute of NZ (IPAC)

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Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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