Price versus no price

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“Why do buyers want to see a price? So that they know what they don’t have to pay!”

Leading New Zealand auctioneer Phil McGoldrick made this statement at our recent Auction Boom seminar and it certainly had an impact.

It is a very confronting comment, but it’s very true

Think about it, as a buyer, what do you do when you see the advertised price for a property – you start thinking about how much lower your offer will be. We’ve all done it – knocking tens of thousands off the asking price.

Selling with a pricing strategy, which is the most common method of sale in Perth, puts buyers in competition with the seller, and if the property remains on the market for month after month, eventually there is conflict between the seller and their agent.

However when you use a no price marketing strategy like auctions, buyers compete against other buyers, which gets a better result for the seller. You also have a call to action – like the auction date – that encourages buyers to act, you have multiple chances to sell, and your property generally sells in a faster time than the traditional private treaty method.

The latest REIWA figures show that the average number of days on market for a private treaty sale is 71 days, compared with 40 days for properties sold using the auction process. In the last five years the quickest average time for private treaty was 50 days in the 2013 December quarter, still outclassed by auctions with an average of 33 days in the same quarter.

Statistics also show that as well as selling in a shorter time frame, because of the competitive environment, auction properties usually sell for a higher price than those sold without a price.

It was great to see so many agents at our seminar and we hope they’ll be able to grow the use of auctions in WA – we certainly have plenty of room for improvement!

Phil told us that in his home town of Christchurch they sold over 2,000 properties via the auction process last year. They have a population of about 350,000. In 2014 1662 properties went through the auction process in Perth and we have a population of over 2 million!

The latest data from CoreLogic RP data also shows how much the Perth market differs from Sydney and Melbourne where auctions are much more common. 39 percent of properties were sold via the auction process in Melbourne in 2014/15. Sydney recorded 38 percent, while Perth saw 3 percent of properties sell though auctions.

We need to boost that number.

Only one bidder? Not a problem!

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One of the questions at our recent Auction Boom seminar was “what if there is only one bidder?”

I believe this isn’t an issue and can still work in the favour of both the seller and the buyer.

At an auction you often have two competitive environments. The first occurs with bidders who have the first opportunity to buy, and the second includes those buyers who aren’t in a position to bid, such as subject to finance, who are waiting to see if the property is passed in so they can make an offer.

When there is only one bidder you might ask why the seller doesn’t let the property get passed in and let all potential buyers compete together, after all there is the possibility just might get a higher price.

While that might happen, the huge advantage of dealing with a bidder is that they will make a cash offer, one that is unconditional and not based on the need to get finance arranged or for another property to sell. The seller gets a quick sale, and quick settlement. If you choose to wait you take the risk that a subject to finance buyer may take a while to get their finance approved and it may fall through, or a subject to sale buyer may take a long time to sell their home.

As for the bidder, why would they want to wait and take their chance competing with other buyers, losing their exclusive opportunity to secure the home.

So how does an auction work with just one bidder?

The auctioneer uses vendor bids, and in WA you are allowed to use up to 10 bids, to indicate to the buyer where they need to be to secure the property. Essentially you are negotiating under auction conditions to get a result.

Even having no bidders is not a problem, you can still have a very competitive environment when a property is passed in. And you can still achieve a very good price, but you may lose the benefits of speedy resolution to the sale.