Archive for category: News Blog

“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.

I recently called an auction where two potential bidders wanted to vary the deposit conditions.  The conditions asked for a $100,000 deposit.  One buyer wanted to pay $10,000 immediately if they were the successful bidder and pay the remaining $90,000 later that day.  The other wanted to pay $50,000 on the spot and $50,000 on the next business day.

Did we let them?  Of course we did!  Asking to vary the conditions showed they were serious buyers who were genuinely interested in the property.  We knew we would have some good auction action and saying no would have lost two bidders.

It’s not very well known in the WA market that you can vary auction conditions, but if you vary them for one buyer you need to offer the same conditions to all buyers so that they are all operating on a level playing field.

The most common variations relate to the deposit and settlement date.  Most auction conditions ask for a 10 percent deposit, but when you don’t know what the final price is going to be it can be a bit hard for all buyers to have the required funds available.  Many ask to be able to pay a certain amount if they are the successful buyer and the rest soon after.

It is less common, but possible, to get a request for vacant possession where the property has a sitting tenant.  This can be a bit more difficult, particularly when there is a fixed term lease in place, as it requires the owner to negotiate with the tenant to see if they are willing to leave the property before the end of their lease.  This request should be made well in advance of the auction.

One of the more unusual variation requests I’ve seen involved an older property in an area that was undergoing a lot of subdivision.  Unfortunately, under the zoning regulations, this particular property was a bit too small to subdivide on its own.  One keen buyer said he would bid for the property on the condition that the neighbour “donate” some of his block, in return for a share of the eventual profits, allowing them to turn two blocks into three.

We approached the neighbour well before the auction. He agreed to the condition, and we put it in writing, subject to the necessary approvals.  We offered the variation to all buyers at the auction, the particular buyer bid, but in the end was not the successful buyer.

So what do you do when you are asked for a variation?  Firstly you need to discuss it with the seller and if they agree you should get it signed off in writing.  Then you must announce the variation to all buyers before the auction starts.

While it is best to arrange variations before the auction, a variation can even be agreed to during the auction in order to get a higher bid.  For example, I have seen a buyer offer to increase their bid by another $10,000 if they can get another 30 days to settle.

Auction conditions aren’t set in stone.  As an agent be prepared to consider variations from serious buyers, and as a buyer, if you are genuinely interested in the property and want to bid but don’t, or can’t, quite meet the conditions, ask for a variation to avoid missing out!