Across Melbourne and Australia for that matter almost every Saturday and Sunday, thousands of property auctions take place. Why are they the Real estate agent’s preferred method of sale? What are the ingredients of a great property auction? Is there more to it than meets the eye?
When one thinks of a property auction the instant thought that springs to mind is a hammer coming down. Followed by a loud “sold”. And then a thunderous array of applause follows the successful bidder.
Some might say a properly conducted property auction should bring certainty and bonus dollars. However not everyone would agree with this remark. Because on the contrary many property auctions do not sell. There are reasons for failure. Other than what translates in a flat or buyer’s market. The first is that the method is definitely not appropriate for some properties. In other words it has to be a property that will attract a fair amount of interest. Whether that is the type of property, its location or its quoted price therefore inducing competition. The second reason is a lack of apparent trustworthiness in the process by the real estate agent. Especially in regard to price. This is not always a deliberate ploy. Some vendor’s will have a preconceived idea of what their home is worth & won’t budge on price. On the contrary some real estate agents will have over quoted on price expectation and during the auction campaign. They then ‘condition’ their vendor blaming the market is at fault. It also requires a more sophisticated skill set to run a successful property auction campaign than to sell by private treaty (private sale). Quite simply, some real estate agents do it better than others.
There are benefits for all parties concerned though. A sale at a property auction is unconditional. The buyer cannot ‘cool off’ or find some reason not to proceed which happens with private treaty. This is an immense advantage especially where certainty makes a difference. For example if you are buying another property. It also focuses the minds of buyers because it has a known time scale. If they want this property, they have to do something about it now. Most importantly, a well-conducted property auction does have the potential to drive the price up way beyond reasonable market value. Opponents of property auctions can complain all they like about whether this is fair to buyers, but that is of no concern to a vendor whose goal is to maximise price.
The basic reason a property auction can do so well is simple. You are bringing several buyers together at the same time and providing them with a forum to compete for just one item. And may it be said the most desirable item, a home. This is fair more desirable than negotiating with a buyer on a ‘first in, best dressed’ basis. However, not all real estate agents have the skill and experience to encourage and nurse along all the buyers simultaneously.
There are other, more subtle reasons for success. In the weeks leading up to the property auction, the buyers have little idea who else might be interested. This forces them to ask themselves how much more they might have to pay if they really had to. By contrast, in a private treaty sale, they ask themselves whether the property is really worth what the owner is asking, and how much less they might be able to get it for. Also if they are interested in bidding, they have to invest in the property in advance both financially (organising finance), time (review of contract and attending open inspections) and finally emotionally. Which say’s commitment.
For real estate agents, property auctions are public and therefore put them on show. Therefore a successful property auction helps real estate agent exposure, branding and therefore the potential to pick up listings. Behind the scenes auctions also help to regulate incomes and budget forecasting especially for the larger real estate agent firms.
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