To Auction or NOT to Auction when Selling Your Home?

Barry Osborne
 


Auction_of_Home_Brisbane's_inner_westIf you read the papers or talk to the majority of Real Estate Agents or even do a course in Real Estate you would be made to believe that this is the only way to go when Selling Your Home. But it simply amazes me that when you talk to many of the people in the street or even fellow students at the Real Estate course you seem to get a different opinion, that most people do not like Auctions. This therefore raises the question as to whom really benefits most from an Auction. In my opinion it is the Industry that is the main beneficiary of the Auction System.



 



For my whole business career, I had also been involved in a farming operation of rearing beef cattle which for the first half of my business life, sold cattle through the Auction system at the local sale yards. I would say that overall the Stock & Station Agents had the Industry tied up by nearly all cattle being sold this way. I believe this was greatly to the detriment of the farmer which I proved with by-passing the Sale yard system and I made so much more money for my farming operation.



Before I discuss this in more detail, I will say that Auctions do have a role to play in the market place. My concern is when it is simply pushed as being the preferred method of sale. But let us now discuss the various factors that affect the whole process, such as:



The Importance of the Selling/Buying Process



All the good advice we receive tells us how important it is when buying Real Estate is to keep your emotions under control. Then we sell a family on a property and give them a feeling that this could be their new home. Excitement all around and all family members are living the dream of their new home. They now have to wait the month until the auction day. In the meantime, they will probably go back a couple of times to inspect, building the excitement even more. The Buyer is doing everything right by having a maximum to which they wish to spend.



They are living the dream without even understanding what price the owner really wants for the house.



Unfortunately, on the Auction day there are another 3 families thinking the same thing. Your limit is reached but the wife looks at the husband with tears in her eyes and of course they keep bidding, somehow they will get the rest from someone. The Real Estate Agent rubs his hands together and the Sellers (sitting in the back room) are ecstatic. This is whom the agent is working for, so it is all okay. This is just one extreme but at the other extreme you get a very disgruntled Seller because they have spent much money on an advertising campaign to get people to the Auction, only to get no bids.



But the biggest danger, is that entering into an Auction Contract means that it is unconditional and so you better have the finance approved, the building and pest inspections done as well as all searches if there is any concern. How many times have you done this only to fail at the auction in securing the property? This means wasted money, and you cannot do this too many times.



THE MARKET PEAKS & TROUGHS



Peaks_and_Troughs_in_the_auction_systemI know all about this from my cattle auctions. They say it is just market forces operating with regards to supply and demand. It is absolutely fantastic if one can sell in a rising market and buy in a falling market. This may be possible when dealing with cattle sales, but in the property market when you sell and you are rubbing your hands together because you had such a good price, you now have to buy back in the same market again. So your gain is soon eaten up.



I believe strongly that the Peaks & Troughs in the market are definitely caused to a greater degree by the auction system. Simply because as I said above where you have the Dutch auction occurring and emotion not contained. In the case of the Private Treaty, the owner puts out a price that they are happy with and someone accepts it and the sale goes ahead. Yes you can have a situation where there are multiple buyers but it does not seem to get out of control. This is because you have a price that sets parameters. History has shown us that what goes up will one day most likely come down again.



Is it not better to simply have steady growth in prices, that keep going up?



CONTROL



In a normal Private Treaty sale process, it is the Seller who really controls the situation, because they put a price on their article (for all to see) and they get immediate response from the buyers as to whether it is an acceptable price or not. This is the way it works in most Selling situations and the smart retailer learns fast the values that their customers will pay for items (market knowledge). In the case of the Auction, you are getting the Seller hoping to sell at a very good price (not definite) and the buyer hoping to buy at a bargain price (not definite). So the whole process is aimed at trying to get the parties to meet somewhere in the middle. I believe the Agent (through the Auctioneer) is in control as he/she is the only one who knows what is the price the Seller wants and also what the potential buyer may have said to him/her as to the price the buyer will go to.



This is all part of the game of keeping people in the dark but living in hope and living the dream. 



So often the Auction leads to disappointment for many and is responsible for so much stress not only to the buyer but to the seller also. This occurs because nothing is definite and everyone is hanging on hope. It is also very obvious that a property sold under an auction system makes it a much easier life for the Real Estate Agent, because as soon as the Auctioneer's hammer has fallen to the buyer, the buyer is locked in because the Contract is unconditional. They can now get onto the next sale.



But I say to you "Is it so good when Selling Your Home (undoubtedly a very large and important transaction) should come down to expediency for the service provider?"


Please let me know your views on the Auction system and please don't forget to subscribe to the Blog on the right hand side.