Tender vs Auction

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When it comes to selling I’m a big believer in no-price marketing strategies – I’ve said it before, when a buyer sees an advertised price they start thinking about how much less they can offer.

More agents are seeing the value of no-price strategies and there are several that are popular at the moment.

You’ve probably seen many of them: set date sale, express sale, offers, contact agent, price on application, expressions of interest, for example. These are all forms of tender, some with a date to encourage buyers to act, some without.

They are all a step up from a price-based strategy, they invite offers, ask the buyers where they see value and those with a closing date encourage action, all of which is good.

However, they don’t have all the advantages of auction.

The similarities are that auction is also a no-price marketing strategy and it has a date that encourages buyers to act.

The differences are that auction creates an open competitive environment.  An auction is a transparent environment where buyers can see what others are bidding.  They know what they need to offer to outdo the other buyers and will bid more if they want to. With tender the onus is on the agent to encourage the buyer to make a better offer, which is hard to do when they don’t know what other buyers are willing to pay. When buyers are at auction and see what other buyers are bidding they are more likely to make a better offer. With a tender a buyer might decide to offer $800,000 and no more. At auction they could see another bidder offering $805,000 and decide to go higher.

The competitive auction environment is also quite emotionally charged and can drive the price up. This emotional aspect is missing from the tender process.

While some tenders and auctions have closing dates, auction is the only process where the auction day is another opportunity to showcase and exhibit the property. It is an event, a chance to get more people to the property, a day where even bystanders and passers-by can and do become involved in the process, an opportunity that is missed in a tender.

Plus, even if the property is passed in, the auction has been an education process showing the market where they need to be if they want to buy the property. There is also the opportunity to negotiate with unsuccessful bidders and subject to finance and subject to sale buyers who are interested, an opportunity that doesn’t exist with tender.

And finally, an auction gives you the chance to take advantage of having a skilled, third-party negotiator on your side, and extra person working to sell your property. The onus is not just on the agent, you have the auctioneer there to negotiate with buyers as well.

It is true that an auction might cost you a little bit more in terms of marketing and the auctioneer’s fee, but statistics show that auctions get a better price. Isn’t it worth paying a bit more for a better result?

The role of an auctioneer

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I’m often asked “what does an auctioneer do?”.

There’s a perception out in the market, among agents and sellers who have never used auctions, that an auctioneer just rolls up on auction day, calls the auction, asks to be paid, and that’s all there is to it.

And, like sellers whose home sells quickly and then wonder why they should pay an agent’s full commission (after all they hardly did any work!), if an auction is cancelled, agents and sellers question why they still need to pay their auctioneer – after all they didn’t call the auction.

The truth is there is a lot more to an auctioneer’s role than just calling the auction.  As an auctioneer with15 years’ experience helping people buy and sell through auction, I’d like to set the record straight.

This is who we are and what we do:

  1. We have experience. Most good auctioneers have already succeeded as real estate agents, owned agencies, been sales managers or are right at the top of the industry and are now doing what they have mastered over the previous many years which is EDUCATE & NEGOTIATE.
  2. We’re schedulers. When an auctioneer gets a booking, there is a lot of back and forth regarding dates and times that the auctioneer, agent and seller can commit to. Sometimes this takes several calls and emails just to confirm one booking. And sometimes bookings need to be rescheduled.
  3. We do our homework. There’s is a lot of legislation around auctions, and the auctioneer needs to research the property and any encumbrances so as not to get any nasty surprises on the day. Again, this again can take time in research and phone calls back and forth.
  4. We’re coaches and mentors. After a booking is made, the auctioneer coaches the agent through the campaign and is ALWAYS available to help deal with any issues that arise. These could be anything from helping with an anxious buyer or seller or a host of different situations that tend to a occur.
  5. We do more scheduling. A reserve needs to be set before the auction. This is not something the auctioneer, or agent, does on their own. This involves a meeting/conference call between all parties. Again, trying to get a time that suits all parties can be difficult and sometimes several calls are made to book the reserve setting meeting and also discuss the buyer feedback and recommended reserve and pass in price.
  6. We’re compassionate facilitators. Whether it is done via conference call, or in person, the reserve meeting needs to be handled with the utmost respect and care. Sellers usually have expectations and buyer feedback may not always meet these expectations. The auctioneer needs to educate and guide the seller, with tact and consideration, to set a reserve. This can take anywhere from 15 minutes to an hour, depending on circumstances.
  7. We do more homework. The auctioneer needs to prepare the auction, keeping in mind that each property is individual and unique and will have its own set of terms and conditions. There are also different auction options, from subject to finance to cash auctions, so different rules can apply. There is no ‘one size fits all’ when it comes to auction.
  8. We’re prepared. The auctioneer generally arrives generally minutes before the auction in order to check the property and have a chat with the sellers, and perhaps some buyers, to assist in getting everyone calm and committed to the process.
  9. We’re auctioneers. The auctioneer calls the auction.
  10. We’re third-party negotiators. Sometimes, during the auction, there is an on-the-floor negotiation that can take some time to go back and forward until common ground is reached. Experienced auctioneers can really add value here as they are not benefiting from the sale, so sellers and buyers tend to listen to them more as they do not have a vested interest in the sale and are coming in as a third party.
  11. We continue to negotiate after the auction has been called. If property is passed in, the auctioneer is usually involved in discussions with buyers and seller to help find common ground and come to a resolution.
  12. We’re accountants. Finally, the auctioneer issues an invoice, rounding off their services. An auctioneer will still issue an invoice if the auction is cancelled. As you can see, they will do a lot of work in the lead up to an auction. Also, taking the original booking meant they may have had to say no to other auctions which would then be booked with another auctioneer. When an auction is cancelled the auctioneer cannot simply fill that vacancy with another auction.

It is also worth noting that auctioneers also carry their own Public Indemnity Insurance.

So, it’s not as simple as just turning up and calling an auction, there is actually a lot of work that goes into being an auctioneer.

Should you use auction if you have already been on the market with a price?

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Auctioneers and auction agent will tell you time and again that auctions traditionally sell properties faster than private treaty – 28 day for auction compared to 76 days for private treaty in the three months to March 2017 (source: REIWA).

So, it’s a great idea to take your property to market with auction.

But what to you do it you’re a home owners who is using private treaty, whose property has been on the market for that 76 days or more? Can you still take a property to auction if you have already been on the market at a price?

The answer is a resounding and absolute yes! In fact, some of the best results we have had have been for sellers who have tried an alternative method and have been unsuccessful.

Earlier this year we called the auction for a home in Weld Street in Nedlands. It had been on the market unsuccessfully for months. It was taken off the market and relaunched with auction.  There were three registered bidders on the day and it sold under the hammer.

Auction is another selling strategy and very powerful one at that, and it will have benefits whether it is your first choice or your second, third or fourth.

What auction does is strip price off the property and gets buyers judging the property on its merit, not on the price.

Auction is a great way to reinvent the property – we have all heard the saying “the height of insanity is to keep doing the same thing and expect a different result” so if you have been trying private treaty with no success, why not try auction.

Here are some reasons auctions work so well:

  • They create multiple competitive environments to sell.
  • They use a skilled third-party negotiator in a contract auctioneer.
  • You have a period of time to receive buyer feedback to assist in setting the reserve. Listen to this feedback.
  • They provide transparent public negotiation – all buyers can see what other buyers are offering in the form of bids.
  • Vendor bidding allows you to ‘counter offer’ and negotiate under auction conditions if necessary.

If your property has been languishing on the market and you do decide to take it to auction, here are some ways to help reinvent the property:

  1. Change up the photos to make it look different online. I strongly recommend getting professional photos taken, and do some property staging if necessary.
  2. Re-boot the property to take it to the top of realestate.com where it will catch more people’s attention.
  3. “Tell the story” – buyers always ask “why are they selling?”, so if you go on the front foot and tell them why you are selling it will motivate them to come to the property.
  4. Use headings like NOW SELLING, WILL MEET THE MARKET, WILL BE SOLD in your advertising to show buyers you are motivated to sell.
  5. Re do the property description and sell the sizzle, meaning tell the buyers why you loved the home or are rather than what it has. Sell the benefits of living there, not just the features.
  6. Invest in some print advertising.

If one strategy has not worked, try and try again with another strategy. Auction is a great way to create competition, and if buyers compete for your property the highest price the market is willing to pay will be produced. You have nothing to lose . Give it a go.

The Rise of Subject to Finance Auctions

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I have been an advocate of auctions for many, many years and I have to admit that when subject to finance auctions were first introduced, I had my doubts.

After all, as they say “if it ain’t broke, don’t fix it” – auctions were working just fine: selling properties faster than private treaty, encouraging buyers to act, getting the best price the market would pay. Plus, subject to finance auctions are something the traditional, strong auction markets of Sydney and Melbourne would never consider introducing, so why did we need to?

However, they have certainly been embraced in WA and been hugely beneficial to our auction market.

Why?  Well, in my opinion, one reason they have found a place here is that WA has traditionally been a private treaty/offer and acceptance market and, unfortunately, banks only give formal approval for finance when they receive an offer and acceptance contract.

Therefore, in the past, even if subject to finance buyers wanted to bid at a traditional cash unconditional auction, they couldn’t as their bank would not give approval for finance without a contract.  They could take a risk and waive their finance, but understandably, most will not do that.

So there they were, avoiding auctions.  Or if they did attend, they’d be waiting in the wings, hoping there were no cash bidders, or that the property would be passed in so that they might have a chance to make an offer.

Now, with subject to finance auctions, these buyers can bid alongside cash buyers at the auction, all they need is a pre-approval, giving them an equal chance to ‘win’ the property. They can also see what other buyers are prepared to ‘offer’ and know how much they may have to bid to be successful.

This has huge benefits for sellers too, with more bidders able to vie for the property. And the more bidders, the greater the competition and the better the result.

Subject to finance auctions have also brought auctions to a wider market, to suburbs where it was thought ‘auctions would never work’ – maybe traditional auctions wouldn’t suit, but subject to finances auctions are having great success. I have seen them work well in Belmont, Beckenham, Atwell, Success and the southern suburbs for example.

While they will never replace cash unconditional auctions, they certainly have their place. That said, there are some things buyer and sellers need to be aware of.

Firstly, all buyers will need to be registered so the agent can qualify them.  This is a huge benefit as it gives the agent and seller clarity on the level of interest in the property.

As mentioned earlier, buyers will need to show that they have received preapproval from a bank or lending institution to show they are in a position to purchase the property.

There is still the risk that a cash buyer, wanting to avoid the competition of auction day, will make an offer beforehand. However, as all buyers should be registered, the agent will be able to contact them, also giving them a chance to make an offer – if possible, subject to finance buyers are encouraged to get their finance approved prior to auction, putting them in a position to make a cash offer at the auction or prior.

Sellers will need to expect delays in finalising the sale. If a subject to finance buyer is successful at the auction the seller will need to wait a further 21 days for the finance to be formally approved and then longer for settlement to take place. It could take six weeks or more as opposed to the 30 days associated with cash unconditional auctions.

There is also the chance that the buyer may change their minds or the valuation not stack up or the finance falls through, meaning the seller is back at square one. However, this can also happen in a standard offer and acceptance situation, so there is no extra risk to try selling by subject to finance auction.

Buyers should be aware that the highest bid may not always be successful. Sellers reserve the right to consider all final bids and their associated conditions prior to accepting, and may accept a lower cash offer with more favourable conditions over a subject to finance offer. And sellers can still accept offers prior to auction.

My final point is that, while subject to finance auctions certainly have their place in the market and are perfectly legal, there is still no official subject to finance contact. Those that are using subject to finance auctions have either created their own contract or are using a RIEWA cash unconditional contract and are annexing a subject to finance clause, both which are potentially legally flawed.

Auction Services Australia have had a reputable legal team draw up a new contract that can be used as a cash unconditional or subject to finance contract with the REIWA ‘Offer and Acceptance’ forming part of the contract. The REIWA ‘Offer and Acceptance’ has been approved by the ACCC.

We are happy to talk to agents, sellers and buyers about subject to finance auctions and how they work.

THE RISE OF AFTER PAY, A STORY ABOUT ADAPTING TO REACH A LARGER MARKET

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I’m sure you’ve heard the saying “if it ain’t broke, don’t fix it”. And of course, if something is working well, why would you want to change anything?  However, sometimes a few tweaks can make that “something” even better.

Consider online shopping – clothes, books, gadgets, toys, music, all just a click or two away from being ours.  Yet it doesn’t work for everyone, not every buyer can immediately pay the full price for more costly items.

In the “old days”, when we shopped, in-store we might have considered a layby when we couldn’t immediately afford something, paying our purchase off over a period of time and then picking it up.

Well some clever entrepreneurs have applied that principle to online shopping.  If you don’t have $159.95 on hand to buy the latest dress Bella maxi dress from Sheike you can choose After Pay and pay four interest free payments of $39.99 over eight weeks – something that is much more achievable financially.  And, unlike layby, you get your goods straight away – no waiting.

More and more businesses are starting to use After Pay and it has opened online shopping up to a whole new market. While the original model wasn’t broken, a few tweaks made it even better, resulting in more sales for retailers and allowing more buyers to take advantage of online shopping.

The auction process has undergone a similar change over the last year or so.

We know auctions get a great result for sellers, but the ability to bid has been limited to cash buyers, subject to finance buyers had to wait in the wings, hoping the property would get passed in so that they might have the chance of making an offer.

That’s no longer the case, subject to finance auctions are becoming more common, and allow subject to finance bidders to bid alongside cash buyers and have an equal chance of winning the property.

As a result, auctions are now accessible to more buyers, opening a property up to a broader market. Giving more buyers a chance to bid and compete for the property results in an optimum outcome for the seller – and who wouldn’t want that!

Contact us for more information on subject to finance auctions and how they can work for you.