Harcourts Auction Andrew Duncan

Could Auctions Become Popular in Wellington?

Auction Johnsonville Andrew Duncan Harcourts
Buyers wait for the Auction to begin at 6 Birch Street, Johnsonville

On Tuesday the 10th of March I was fortunate enough to be involved in the Auction of 6 Birch Street in Johnsonville, one of the nicest homes I have had the pleasure of marketing in this Northern Suburbs area we call home. This particular home attracted more than 10 registered bidders and sold well above expectations in the mid $600’s after spirited bidding from a number of interested parties.

The over-riding feedback I received throughout the process was that buyers were relieved to see that it was being marketed via Auction. They were nervous about getting swept up in the process and competing against other buyers but they were comforted by the knowledge that it would at least be a ‘fair fight’ where they could see their competition and know exactly how much they needed to pay to secure the property. As opposed to a Tender process where they would have had one chance to put in an offer and no idea what the other bids were.

Auction Johnsonville Harcourts
Harcourts Auctioneer Darryl Harper spells out the rules of engagement

So why is it that so many properties in Wellington being sold by Tender? How did Tender become the selling method of choice in Wellington when it is barely used at all outside our capital City? Or anywhere else in the world for that matter.

Tenders are a private process which suit Wellingtonian’s conservative approach to real estate. Owners like that they can review all offers on their property at once. They can still negotiate with any offer and there is no reserve price that they are pre-committed to accepting. They can think about any offers and obtain professional advice before accepting anything. They are also able to open their property up to both cash buyers and those with conditions (increasing the pool of potential buyers). Owners often get nervous when the idea of an Auction is floated and Tender feels like a much less ‘stressful’ way to sell.

In Auckland, Christchurch and other areas Tenders are rare indeed and I believe this is largely driven by the recommendation of top salespeople and the ethos and focus of the dominant real estate companies in each market. Also, when prices are rising you will see more properties being sold through Auction or Tender.

Every buyer would prefer to see every property for sale marketed with a price and they would then like to have the opportunity to negotiate one on one with the owner. The problem is, this simply hasn’t been the norm in our main centres since the 1990’s. owners who have worked their butt’s off for years paying off the mortgage and who have put their heart and soul into renovating a property want to sell it for the best possible price (and who can blame them for that?). So they are going to look for a strategy which allows them to capitalise on their hard work and achieve the best possible result – enter Tenders and Auctions. Your parents may not like it but unfortunately these two bad boys are here to stay.

The nicest houses are going to attract a lot of interest no matter how they are sold.  Real estate salespeople know this and are more likely to market these properties through a Tender or Auction to maintain some control of the process and make it easy for a large number of potential buyers to know exactly when are where the property will be available for sale.  If you choose to ignore these houses it is highly likely that you will be ignoring the best properties available in your area.

I have seen both processes used to outstanding effect and I firmly believe 3 things after 9 years in this business:

1. Not every property is suitable for an Auction, but when they work well they are unbeatable as a process. Tenders however can work for almost any property.

2. You would have to be crazy not to consider using one of these processes when selling your property. They don’t always work but all the best prices I have seen have come via one of these methods.

3. If you are thinking of selling in future there is no right or wrong approach. It comes down to what suits your personality and your property. I can give you countless examples of properties that sold for a huge price at Auction that never would have achieved the same result via Tender. I can also give you countless examples of Tender outcomes that would simply not have been possible to achieve via Auction.

It is critical that you obtain advice from someone who is proficient with all forms of marketing (price, BEO, Auction, Tender) so they can offer you all the tools available to achieve a great result.

Let me know what you think by commenting below.

 

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THOUGHT OF THE WEEK:
“If you can find a path with no obstacles it probably doesn’t lead anywhere”
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6 comments
  1. I hope auctions don’t become the norm in Welly. I’ve experienced the hype auctions bring in overseas markets and it’s incredibly frustrating and heartbreaking for FHB who do their research, engage in legal representation, gain bank pre-approval and pay for building inspections…only to be let down on auction day because the opening bid is way out of their league or the price is pushed up by cashed-up investors. The vendor does not have to disclose the reserve to the agent until just before the auction starts, at which point it is written on the sale docs (and then not revealed until the property is “on the market”). One issue with the industry in NZ is that there are few, if any, buyers’ advocates. I’d like to see someone who advocates on my behalf as a buyer for a change.

    If tenders and auctions are the way of the future, it should become an industry standard for vendors to provide a LIM. Those who don’t provide a LIM are treating potential buyers with contempt.

    1. Hi Ms H, thank you for commenting. I absolutely agree with you about sellers providing LIM reports. I wrote this post a few weeks back which attracted a lot of interest – asking the question “Should sellers provide a LIM and builders report”
      http://blog.andrewduncan.co.nz/think-sellers-provide-lim-builders-report/

      Auctions can certainly be tough on buyers by all means and buying a home isn’t easy. In this market most attractive homes will attract multiple offers so unfortunately doing research and missing out is a common part of the process for many buyers, even in Wellington where Auctions are not so common.

      Thanks for reading, I really appreciate your feedback.
      Andy

  2. “I can give you countless examples of properties that sold for a huge price at Auction that never would have achieved the same result via Tender. I can also give you countless examples of Tender outcomes that would simply not have been possible to achieve via Auction.”

    I am interested in learning the reasons behind your statement above, with examples.

    I understand there are arguments for and against any method of sale, and I have read the Jenman arguments against auctions. I am interested in looking at all sides of the argument, and trying to keep an open mind!

    1. Thanks for your comment Laurence, I have ready one of Jenman’s books advising against Auctions and while he has some valid points I believe it is important to keep an open mind as you suggest. I find there is no “one size fits all” approach for selling property and when choosing a strategy it is imperative to consider the target market (eg. first home buyers, investors, empty nesters, etc) and the owners situation (not every owner should be put through an Auction process). Some people prefer the privacy of a Tender campaign. I choose a strategy based on the number of buyers I think will likely be attracted to offer on a property in a 2-3 week timeframe and go on the following rules:
      4-10 buyers (or more) – Auction
      1-3 buyers – Tender
      0-1 buyers (a harder property to sell) – Priced

      For details on why these choices apply, you are welcome to give me a call during business hours on 0800 286 686.

  3. Andrew, auctions are popular in Auckland because of Chinese with the Big Bucks. This is also the answer (one of top by importance) for “why are Auckland prices rising”. Have a look at Auckland auction rooms and compare to Wellington auction rooms. You’ll see the difference in people who attend these. Yes, if you name sounds like Scott Tailor, you are much less attracted by auctions than if you name sounds like Yuin Chang. Easy as.

    1. Hi Alexey, thanks for your comment. I certainly find Auctions (when used in Wellington) are more suited to particular buyer groups. For example – developers and investors are often more relaxed and experienced and are more likely to take part in an Auction than first home buyers, who prefer to have conditions in any offer. When I market a property with subdivision potential it will usually be an Auction to attract as many of the “target market” to take part as possible. We are certainly nothing like Auckland down here. Wellington is far too conservative to get that carried away! And we don’t have quite the same pressure on existing housing stock from increasing populations growth. Thanks for reading!

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