Real Estate Auctions: A Beginners Guide

Tony Buckwell
September 17, 2021

It would be fair to say that I have probably attended more property auctions than most. Over the years, I have picked up some valuable insights into auctions and what makes them such a popular method of sale in New Zealand. 

In this blog, I wanted to share my thoughts & observations, and at the same time, address some of the myths around auctions. 

I've formatted this article in a simple Q&A style to keep it as concise as possible. That way, you can pick out the bits that interest you the most. 

Are auctions the best method of sale for all properties?

Auctions are not necessarily the best method of sale for every property. There are pros & cons to each form of sale (tenders, asking price, negotiation etc.). A good agent should explain the merits of each approach relative to the property to be marketed before a decision is made. 

I researched my sales back as far as 2014 and found that 32.4% of these properties were marketed by auction.

What is the 'sold under the hammer' success rate of properties offered for sale by auction? 

The success rate of auctions may vary with market conditions. As a general guide, the same research of my auction campaigns since 2014 revealed a success rate of 91.3% sold in the auction rooms (under the hammer). The properties that didn't sell under the hammer all sold successfully shortly after, resulting in a 100% selling success.

Here is an overview of the various listing success rates at Barfoot & Thompson for the three months from 18 April 2021 to 18 July 2021 and sold by 16 September 2021.

Do auction marketing campaigns cost more than other methods of sale?

I can't speak for other companies. However, at Barfoot & Thompson, the only additional fee directly attributable to running a property auction is a documentation fee of NZ$185. The documentation fee covers the preparation of the auction agreement and full use of our auctioneers, auction facilities etc. 

Additional marketing investment is still needed to secure high-quality property photos, videos and advertising for the property. The vendor (property owner) can select marketing options suited to their budget via consultation with their agent.

The costs are not necessarily any more than for any other campaign type. The commission rate for an auction is the same as for any other method of sale. 

Can I sell my home before the auction date if someone wants to make an offer?

Yes. Barfoot & Thompson has a robust and proven pre-auction offer process. 

Can conditional buyers participate in a property auction?

No. All buyers at a property auction are bidding on a fully unconditional basis. If they hold the highest bid and the hammer falls, they are legally bound to complete the purchase.

Conditional buyers can make an offer on a property after the auction if it is not sold under auction conditions.

What are the most significant advantages of selling by auction?

Here are the top advantages of selling your home via auction:

  • The sale is always unconditional (a clean deal and often resulting in less time on the market). 
  • There is a deadline for buyers to act - this creates urgency and compels buyers to act decisively (often resulting in less time on the market)
  • There are no price limitations with an auction. If bidding competition can be created, this can achieve a premium sale price.
  • You are in control. You decide on the reserve price, deposit terms, and a settlement date that suits you.
  • It is the most transparent method of sale. Buyers can see what their competition is willing to pay, instead of a tender or multi-offer situation where an individual purchaser's offer is made 'blind' of other offers.
  • It is not at all uncommon for an auction result to far exceed the seller's price expectations.
  • In a cooler market, this method of sale often still achieves the best result for sellers. 

What are the most significant disadvantages of selling by auction?

Here are the potential downsides of selling your home via auction: 

  • Conditional buyers are eliminated from competing for your property until after the auction (unless they arrange bridging finance).
  • If only one bidder is present at the auction, reaching the seller's reserve price can sometimes be challenging. 

What are the advantages/disadvantages of an in-room auction versus an on-site auction?

Barfoot & Thompson offers vendors both in-room (at the auction venue) and on-site (at the property address) auction options. Here are the potential advantages and disadvantages. 

In-room auction advantages:

  • In-room auctions have professional facilities such as meeting rooms, internet banking availability, printing/scanning devices, restrooms etc.
  • The environment is controlled. Weather and other random factors do not impact the bidder's final impressions of the property or their auction experience. 
  • Bidders can experience other auctions being called before the property they have an interest in.
  • Generally speaking, only serious bidders will attend an in-room auction (as opposed to the spectators always present at on-site auctions).

In-room auction disadvantages:

  • In-room auctions can be affected by some physical challenges of the auction venue - parking availability, travel distance etc.
  • There may be a lesser emotional connection to the property than if the bidder was on-site. 

On-site auction advantages:

  • Bidders can do a final walk-through of the property immediately before the auction commences.
  • If the property has an emotional draw (e.g. a fantastic harbour view), this may inspire bidders.

On-site auction disadvantages:

  • No control over environmental factors. Some examples of this are weather, traffic noise, noisy neighbour's dogs and music (the list is extensive).
  • Needing to accommodate a large crowd in a residential setting.
  • Most attendees will be 'nosey neighbours'. This can make it challenging for the auctioneer to connect with the actual bidders. 
  • Whatever happens - all your neighbours will know about it. 

What is the best method/technique for bidder success at an auction?

This is a pretty big question to answer quickly. Therefore, I have written a separate blog covering this topic, which you can access here.

What is meant by the term "vendor bidding"?

Vendor bidding is where the vendor can bid against buyers at their property auction. Vendor bidding is only allowed until the auction reserve price is reached. Barfoot & Thompson does not permit vendor bidding at our auctions. All bids at a Barfoot & Thompson auction are by potential buyers. 

Can the deposit amount or settlement date for an auction be varied?

Yes, however, changing the deposit amount or settlement date for a property requires the purchaser and the seller's written agreement before the auction.

What if a property buyer can't make it to the auction venue?

You don't need to be physically at a property auction venue to bid these days. The simplest remote bidding options are-

  • Telephone bidding.
  • Bidding using an app such as our great Auctions Live system. This app is widely used now (particularly during periods of raised COVID-19 alert level restrictions). Barfoot & Thompson has created a practical online guide to the whole online bidding process. Please feel free to watch this tutorial video for an easy-to-follow guide on bidding using this method. 

Can a buyer pull out of an auction agreement or stipulate buying conditions after the auction?

No. Once a buyer has bid successfully, they will be required to complete the signing of the auction agreement immediately and pay the deposit.

They are now legally/contractually bound to complete the purchase at the settlement date. An auction purchase is a fully unconditional transaction. Any buyer due diligence must be completed before the auction. 

What if the bidding doesn't reach the seller's expectation?

The seller sets the auction reserve. If the bidding doesn't reach that level, the real estate company has no authority to sell the property. However, if the seller decides to adjust their reserve to 'meet the market', they can do this live during the auction call. Thus, the seller maintains control of the process at all times. 

What are your thoughts?

I’m always open to a no-obligation chat. Fill out the form below and I'll get in touch as soon as possible.

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