The real estate world is full of deception. The Auction results as reported by the media is just one example.
Over recent weeks we have seen a well-known reporter of results record some interesting figures. They reported that only 3 properties were offered for sale by Auction that particular weekend. The report advised none were sold, but they also advised there had been 100% success ie. three sales. How could that be? Isn’t that misleading?
On the weekend of the 22nd January the Auction Results Report read as follows: –
Total Scheduled Auctions 168 Clearance rate 77%
Sold Prior 13 Passed In 14 Sold at Auction 59 Withdrawn 8
How can this be? If only 59 properties have been sold from 168 scheduled isn’t that more like 35%. Even by including the “Sold Prior” properties it only makes a clearance rate of 42%.
Who is kidding who? If you don’t stop and think about it you, the reading public, are being hoodwinked. It’s deceptive to say the least.
We often see agents boasting about high Auction success rates. Well let’s try and set the record straight. From research we have commissioned over the last 3 years below is the outcome. It may not be perfect but it is the best information that can be extracted from various means and reports. It paints a very interesting picture.
The most significant column to take note of in the above table is the last one – the auction fail rate.
Let me ask you, what is an Auction result?
Is it a sale negotiated prior to Auction? Is it a sale at Auction? Or, is it a sale after Auction?
How can a sale “prior to Auction” be counted as a result. It is a private sale negotiation prior to a date. The way the outcome has been achieved is no different to any other privately negotiated sale with or without a declared asking price or price range. It should not be classed as an auction result.
When is an after auction sale an Auction result? NSW Law allows a sale made before midnight on the day of the Auction to be sold under Auction conditions. That means a sale is negotiated and there is no cooling off period. Victorian Law allows a similar outcome for up to 3 days after an Auction.
In both cases the final result is achieved by private sale negotiation. Neither has happened “Under the hammer” –as the saying goes.
Here’s something else to ponder about the auction method of sale and the process.
Are auctions “competitive” as many people suggest or are they just “comparative”?
Do parties compete or are they just comparing their public bid with the other persons’ public bid?
Imagine this situation. You are selling your home by auction. You have a reserve price of $500,000. The bidding is brisk and finally there are 2 buyers “competing.”
One bids say, $524,000, the other then bids $525,000 (just $1000 more) and your property is sold. You are delighted. The sale is $25,000 over your reserve price (your lowest price) and the result is considered to be a high price. But, here is the “sting” it wasn’t the highest price the buyer was prepared to pay. The buyer would have paid $550,000 – that is $25,000 more, but didn’t have to. Why? Because the system is comparative and doesn’t allow the highest price to be established. You see it is focused on the wrong figure, your reserve price, not on the highest price the buyer was prepared to pay. Please take note of this comment – “An auction only ever achieves the second best price”.
The sad part, if this was you, is that you have just lost $25,000. You paid your agent a substantial fee, say $15,000, but the real cost is a total of $40,000? A high price to pay!
You are what we call a “hidden victim”. You didn’t know or realize what had happened.
Please don’t think this sort of thing doesn’t happen in Albury – Wodonga and surrounds. It does, every day. The buyers often tell us when they have bought elsewhere what they would have paid for the property they just purchased.
As an example, some recent buyers told us they were prepared to pay $300,000 more for a particular property.
If the property was undersold by $300,000 and assuming the agent earned a $30,000 fee, isn’t the real cost of selling $330,000. While this sounds like a lot of money, and it is, this is not an isolated case. We hear stories like this every day. They would have been prepared to pay more. Why didn’t they? Because either the system, or as happens more often than not, the agent never asked them to pay their best price.
Prior to April 1998 I conducted some 200 auctions every year. Since then I have never conducted a property auction. I stopped doing them. Why? Because I became aware of the deception in property auctions. I realised they were a fraud and not in the best interests of sellers.
I enjoyed doing Auctions, they were good for me as an agent. However, my conscience wouldn’t let me continue.
They are fine for chattels, and charities where things need to be cleared and the highest price is not the main need.
No sales negotiation system says a seller should declare his/her price to a potential buyer and more particularly publicly declare it as your lowest price (your reserve price) and have the marketing focused on that figure. It could be likened with playing poker with your cards laid out on the table before you for all to see.
As suggested selling by auction is a flawed system. It’s fundamentally deceptive, but used by many in the real estate industry.
My question – Why take the risk with your greatest asset, and sell for the second best price?
|Peter Drummond – Director, Drummond Real Estate|