It is important to understand the auction process, what auction fees cost, what the pros and cons of house auctions are, how to set a reserve sale price, know the rules for bidding on the day and campaign timeframes.
Throughout 2021, selling properties by auction has continued to be a favoured method of sale by real estate companies and vendors. A good proportion of properties using this method have broken many new sale-price records throughout the regions.
However, there are other options available if this is not your preference.
Real estate agents and companies often advocate for selling at auction because managed well, they can also achieve a fast and unconditional sale, most especially in a seller's market.
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.
AUCTION SUCCESS RELIES ON AGENT COMPETENCE
The success of a house 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 auctions are done live online using video calls or other platforms which has resulted in many properties being sold site-unseen by ex-pats returning to New Zealand to live or people living out of the district and unable to travel due to Covid-19 alert level restrictions.
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.
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.
Fostering buyer competition
In the advent of a pre-auction offer, they should skilfully 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.
Scroll down to learn about time frames, pre-auction offers, pros and cons and more tips about the auction process.
Vetted real estate agents with integrity
Our advice is that you use a vetted real estate agent with proven competency who will advise you wisely on the best method of sale for your location, property, condition and value.
TIPS ABOUT REAL ESTATE 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.
- 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.
- Change of mind: If you decide not to have an auction, you can change your mind but best to do so prior to commencing 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.
- 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.
AUCTION CAMPAIGN TIMEFRAMES
Marketing timeframe: 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 cancellation: The auction can be cancelled if a sale and purchase agreement is signed following a pre-auction offer.
Auction day and 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 period: 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.
THE AUCTION PROCESS
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: 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.
The sale and purchase contract: There are special sale and purchase agreements for selling by auction.
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: 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.
PROS AND CONS OF SELLING A HOUSE AT AUCTION
Pros of selling by auction
- Buyer attraction: Some say they attract more buyers because people aren’t put off by an asking price.
- Bidding wars: Auctions can achieve great prices due to excitement, competition and bidding wars.
- Maximum offers: Buyers are thinking about the maximum they can afford to bid rather than how low they can negotiate the price.
- Focussed buyers: High profile advertising and the fixed term can focus buyers on the property.
- The reserve: Buyers don’t know your reserve.
- Conditions free: Buyers cannot make conditional offers so the sales contract is not subject to inspections or finance, however they can approach you to vary the terms of the auction or the settlement date. Lack of conditions saves time, work and money.
- Sale completion: The winning bidder must complete the sale as it is legally binding.
- No pressure to sell: If the property gets lower than expected bids the reserve price protects you.
- Fast: Auctions are one of the quickest ways to sell a property.
- Serious bidders: Buyers have to do due diligence beforehand so will be serious buyers at the auction.
CONS OF SELLING AT AUCTION
- Highest price? House auctions do not always achieve the highest price possible. Other methods of sale allowing for upward negotiation may get a higher price.
- Privacy: Auctions are public and anyone can attend. There are other more private methods of sale, such as tender.
- Extra cost: Anywhere from $400 to $1200 for the auctioneer and the focus on high profile marketing can be more costly
- Stressful: Auctions can be nerve wracking due to their fast pace.
- Buyer deterrents: Auctions can rule out potential buyers who aren’t able to secure finance by auction day while some may be deterred due to the competitive nature of the bidding. Potential buyers tend to assume auctions will rise to a price beyond their means. Registering to attend may also put off some.
- Cooling off: During the wait for auction day, buyers may find another house and quickly make an offer.
- Regret: If your price only just makes it over the reserve price, you may be disappointed and by then it will be too late.
- Buyer tactics: When bidding against each other, bidders will only bid enough to get higher which may not be their best price.
- Buyer bargain: While it is currently a seller’s market, in other conditions buyers have admitted they would have paid a much higher price for the home.
- Failure to sell: Not every property will sell on auction day, although a sale is often negotiated shortly afterward.
- Relisting expense: If your house doesn’t sell at auction and you need to relist it, you will be facing even more expenses.
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 done by the auctioneer or real estate agent to move bidding toward the reserve price but must be clearly identified as such.
Terms & 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.
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Article updated October 7, 2021 | About