Mar 11
20

4 Reasons Auction is NOT the best way to sell real estate

9 Comments

Like the heading here? OK, OK, it was a sneaky way to get you here, but look, you’re ready this blog post aren’t you? You could have been doing a million other things right now, couldn’t you? (sneaky bugger Twiddle, righto, now that I’m here, what have you got?)

This started on Facebook, and what a great thread of discussion. Chris Gilmour made a comment  and BAM, all hell breaks loose on the thread. All the Ray White guys swearing by it, and others saying it’s the work of the devil and everywhere in between.

Here’s my take on the auction method of selling real estate. It may be right, it may be wrong, but it’s my take. Agree or disagree, comments are welcome.

Points to consider

1) If 50% of the buyers (approx stat) either can’t or WON’T play under auction conditions and simply discount any property that is an auction, I can see no argument for it in this market for it, when the stats are so low.

Right or wrong, parketing without a price got a study we did, 50% less enquiry on average across SE Qld. I see nothing that would change that stat.

No matter what the stat is across the board, if any significant portion of the buyers are eliminated by the method of sale, then it’s out in most cases, in my book.

2) ‘With auction, the buyer only has to pay $1 more than the second highest buyer, and that isn’t always (or even often) the most the buyer would have spent.

An example given on facebook was regarding a figure about a buyer paying $78k less than they would have paid at an auction.

eg – If the buyer has $78,000 more ‘willingness to pay’, and we don’t get it because of the method of sale we’ve chosen, then the method is flawed.

The fact is, in a private treaty ‘multiple offers’ situation, where the buyers are bidding privately against their own desire to own the property and, by the legal training the REIQ, OFT approved Lawyers advice, etc, we are FORBIDDEN from disclosing, or even hinting at what the other offer is, then we truly get the highest price the seller was willing to pay. (with the right negotiation skills)

So if auction meant no under bidders competing etc, but the one buyer paid $78k less than they would have under other conditions, this epitomises the flaw in the auction method of sale. That the buyer only has to pay $1 more than the second highest buyer.

Overly simplistic I know, but in some cases, this simplistic situation can cost the seller tens of thousands of  ‘otherwise bankable dollars.’
3) the ‘A’ word. (no not ‘Amway’ but bloody close, when it comes to the emotion of the response that the word conjures up.) Seriously, mention the ‘A’ word, and watch the body language and facial expression of the seller.
Well the fact is, if we have to drag the seller kicking and screaming to the auction method of sale, because simply, most sellers HATE the idea, then are they really going to be attacking the process with all their heart. I tell you, if WE are more committed to the sale than the seller, the chance of us getting a successful outcome are low.
If the seller isn’t really excited about the process of moving to wherever they’re moving to, AND the vehicle that is going to take them there, again, a tough job for us, and one I’d rather not take on.
4) You gotta wait, in most cases, 4 weeks for the sale. What about my coaching client and training colleague Chris Gilmour, who’s average selling time on the market is 18 days? Tell him to wait 4 weeks for an auction and you’ve made his business about  40% less efficient. Now I know there is the ‘pre-auction’ time, but it’s simple, his days on market would increase if he ran auctions, because all of the marketing is geared to a point later in the campaign than his current days on market.
Now, I understand that a skilled tradesman, with sharp tools in their chest can make the auction method of sale work. I’d rather a gun negotiator with an auction agreement in his hand, than a mediocre agent with a private treaty agreement in his hand. 

And in certain markets, where demand significantly exceeds supply, either in a micro or a macro economic sense, (so either the property is so rare there’s nothing to compare it to and lots are interested, or a boom market like SE Qld in 2003-2005), then anything OTHER than auction, and you probably have ripped off your seller, because under those conditions, you just never know how high bidding will go, and of course that’s the big big pro of the Auction method.

But in so many markets, the cons I’ve mentioned outweigh that pro. 

Thoughts?

 

PS – There’s a great interview with the best Auctioneer I know, JAson Andrew, in my free gift, available at

www.FreeRealEstateSalesTraining.com

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Posted in real estate real estate agent real estate sales sucess real estate training sales sales Brisbane by Glenn Twiddle 9 Comments

9 Responses to "4 Reasons Auction is NOT the best way to sell real estate"

  • Sam Kelso says:
    March 20, 2011 at 3:49 pm

    Interesting article mate. Would love to write a pro auction one and expand on a few things if you would like. Also I do not agree about Jason Andrew you do know me…

  • Glenn Twiddle says:
    March 20, 2011 at 3:57 pm

    Understood Sammy, and of course I know you man, you’re a frigging champion and I’d be honoured to have your take on the article.

    And man I know your passion too, so I bet you convert a few people with your points. How should we do it? Maybe email me the article, I’ll post it as a one-off, or if you like, I’m happy to set u up as an author of the blog. U’d know wordpress yeah?

    Glenn

  • Nelsonian says:
    March 20, 2011 at 6:24 pm

    Very good points here, appreciate what you mention about multi-offers too. There is definite merit in yr cons of an auction vs a multi offer, especially when you have 3 or 4 or more involved, at least in our local Nelson market anyway. Eg; 4 offers last week on new listing and sold thousands above asking price. Would those 4 all have been bidders at an auction, hmmm can’t say if I’d say that I believe they would be…..I believe the “new listing” part was more instrumental in this case.

  • Glenn Twiddle says:
    March 20, 2011 at 7:17 pm

    Not saying auction doesn’t work at all, just saying, in most markets, for most properties, that wouldn’t be the method I’d choose.

    Of course, I’ve seen brilliant negotiators make the auction method work too.

    But yeah, on average, only two of those 4 buyers would or could have bid under auction conditions. That being said, would they have just completely ignored the property in the first place if it had ‘auction’ on the marketing? If so, that is the problem, that the method of sale discounts some buyers.

    Cheers for the comment

  • Steve Koerber says:
    March 20, 2011 at 7:48 pm

    Glenn, my market is always hot for most properties and I don’t have rows and rows of very similar new-builds etc. The mix of housing stock side by side for me is so different and virtually impossible to price.

    I find, because of this, auction is a fair way to determine market price.

    I’m a skilled negotiator (like most reading this). Top1% of agents in NZ (unlike most). It’s a rare event for buyers to win one of my auctions then say they would have paid much more. My auctions are more like ‘open negotiations’ than a typical mechanical auction. If you know how, the auction method can be used very effectively to achieve a price much much higher than the underbidder’s last bid. Knowing how to do this makes your second point invalid. The dearth of agents who know how to do this (or that hey should) is why some will stand by your argument in point 2 above.

    We sold a property last week for $960k. The official appraisal (CMA) was $730k to $830k based on many very relevant very recent local sales. If that property wasn’t auctioned that incredible result would have been 99% impossible. The asking price might have been $850,000 and the owners would have been thrilled to generate a multi offer and achieve $870,000?!

    I’m not a blind auction preacher. I price when appropriate. But often pricing is inappropriate. Pricing a property might generate a multi-offer, but generally it won’t produce (and has no chance of producing) a freakish result like the one described above.

    When all is said and done if a vendor thinks our service was excellent value for money, then and only then can welaim to have chosen the correct method of sale.

    If an agent is turning over and selling lots of property, good on them, they are legends. The acid test however is whether they were excellent (not just good) value for money in the eyes of their vendors?

    Cheers

  • Glenn Twiddle says:
    March 20, 2011 at 8:49 pm

    100 % agreed Steve. In cases like this, yup, pricing a property and going for it will never, or rarely, produce the ‘freakish’ price and only auction can do that.

    A lovely lady I knew once (actually a co-trainer at the REIQ with me) wanted $900k odd for her property, spent $10k odd on a marketing campaign, and achieved $1.2m. Never would have happened with a price, no matter how many multiple offers she had.

    I didn’t say there are no pro’s for the auction method of sale, and that’s why this debate has been going on longer than I’ve been around, and will continue.

    I had dinner with the great Ian Keightley and this topic came up, and boy, if you can get this guy as your auctioneer, geez I’d almost auction when I’m one of the ones who doesn’t like it, so definitely in the hands of a pro like yourself, Auction is a great option.

    So I see what you’re saying Steve. I guess the auctioneer/agent combo who can pull off what you’re saying re getting a significantly higher price than the under bidder are few and far between, but hey, if you can show me (this is the ‘me’ with my sellers hat on now) case study after case study, testimonial after testimonial, a ‘preponderance of proof’ as it were, then I’m all for it.

    Again, thanks for the comment, and I’m interested in Sam Kelso’s article on my blog coming up, which will (I trust, coz Sam’s a guru) contain the counter arguments you speak of, and hopefully educate me a little too.

  • Neil McFadyen says:
    March 21, 2011 at 12:30 pm

    Wow Great logical take on things ! As I am an inexperienced new comer to real estate my perspective on this discussion is purely unbiased as I have no emotional motive with any method. I have some questions though Glen as it was the only pro of an auction you stated, but it stands out in blantant conflict to your sound argument against auction. Now forgive me if I am missing something here as I am very new but you stated a market condition where an auction would produce the highest price. How can this be true ? I would have thought the market condition and not the sale method responsible for this ? you said “because under those conditions, you just never know how high bidding will go, and of course that’s the big big pro of the Auction method.” With such a demand and maybe a unique or desirable property was the auction method perhaps responsible for exeeding both the agent and vendors expectation rather than acheiving the highest price ? your statement reads clear to me if you phrase it backwards ” The big pro of the auction method is under certain conditions you just never know how high bidding will go ” would that condition have more to do with the agent not knowing how high bidding will go ? or setting their expectations below possible ?

  • Glenn Twiddle says:
    March 21, 2011 at 2:33 pm

    Yeah, I guess what I’m saying, if the market condition is insane, and the agent really has no idea what price the property will go for, because prices 2 months ago are already too low, because the market has risen 5% since then, then auction is the only method of sale that will get those ‘way over the top’ prices.

    But if these situations are rare, like they are right now, and supply well exceeds demand, then my preferance is private treaty, with skill, marketing, negotiating prowess, positioning of the property, etc.

    So to answer your question, ‘would that condition have more to do with the agent no knowing how high bidding will go?’ the answer there, is yes, if that’s the case, auction’s the way to go.

    The overriding thing I can’t get past with auction is the fact that a certain percentage of people, who might be the highest buyers, just won’t even look at an auction property, and to take them out of the race, to me, is a real problem.

  • Mel says:
    March 22, 2011 at 5:20 pm

    Id argue that it does completely come down to the market condition. In a market when buyers can pick and choose, that percentage of buyers who prefer to overlook auctioned properties are a valuable quantity of potential buyers, whilst in a boom market, not only is the number of buyers sufficiently increased to compensate for the non-auctioners, but i’d also argue that the percentage would decease, simply because the buyers can’t be so choosey if they actually want to end up with a property. Only going off my opinion though… I certainly wouldnt participate in an auction unless the market dictated that I had to.

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