The very best means of achieving a premium or fair market value for a property within a specified time is auction. The deadline for the sale creates a sense of urgency among buyers and sales consultants alike.
The word 'auction' derives from the Latin word 'augere' which means 'to increase'. Dating back to Roman times, auction is one of the oldest methods of selling and yet today is the most advanced method of marketing real estate.
Auction involves a short, sharp and intensive marketing campaign of a property without a price. This is to test the market to see what buyers, in a competitive situation, are prepared to pay to become the new owners of that property.
Marketing with a price limits what a keen buyer may pay. Once a listing price has been established for a property, a ceiling has been placed on what a buyer expects to pay for it. Auction, on the other hand, offers a real opportunity to get more for a property than the seller might expect.
Our objective is for the seller to have the highest price possible offered for their property by the end of the auction campaign.
A well-run auction programme will ensure that the property gets the maximum exposure. It is certainly the method that offers the highest degree of responsibility and control shared between the consultant and seller.
Through auction, buyers are prompted to pay their top price by:
The pre-auction period is when three to four weeks are spent sourcing buyers to qualify and prepare to bid at the auction. High profile auction marketing will highlight the property, producing the greatest exposure during the period when enquiries are likely to be at the highest level.
During this stage the consultant gathers market feedback to help the seller set an educated reserve price. The seller can agree at the outset to accept offers prior to the auction and may choose to sell during this stage.
The day of the auction. The auctioneer and consultant will establish the opening bid level-crucial to create active bidding. The auctioneer also declares publicly that he/she reserves the right to bid on behalf of the seller which is simply negotiating on the seller’s behalf. The auctioneer will not sell the property below the reserve price set by the seller, but will use his specialised skills to build bidding momentum and emotional competition between buyers to encourage fear of loss, desire to win and ultimately the best price possible for the seller, sold under the hammer.
If the property is passed in, the auctioneer will approach the highest bidder to offer them first option to accept the seller’s reserve. Often the final bid and the seller’s reserve are not that far apart and a sale is negotiated successfully. The auction conditions of contract still apply – cash sale with 10% deposit paid on the auction day with a 30 day settlement. In regions where there is a buyer cooling off period, this is usually waved.
Post-auction period. Should the bidding not meet the seller’s reserve the auctioneer will pass the property in at a level agreed upon that maintains its value plus its saleability. Some people believe that if the property does not sell on the auction day then the auction system has failed. This is not true. Stage three provides opportunity to negotiate with those who may need to sell another property or arrange finance before they can commit themselves unconditionally. The previous three to four weeks of market research provides the sellers with the confidence and ability to set a fair market value price on their property.