Why auctions are just as valuable in a slower market
With Justin Nickerson
There are a couple of schools of thought around auctions when it comes to market conditions.
Firstly, when the market is going really well, people love auctions, but when it’s a bit horrible that’s when people are forced to auction to make a sale.
The thing is, no one really talks about the in-between market, however, it’s actually when auctions can be the most valuable.
In slower market conditions, there isn’t that strong demand from buyers, and you don’t have super low prices.
What you do have is stability and normality, which doesn’t sound very sexy, but actually presents opportunities to create competition for properties.
There are a number of reasons why auctions work well in these conditions, including reducing the chance of making a pricing mistake. That’s because there can be price volatility in slower markets, which can result in vendors pricing their properties too high or, worse still, too low.
Selling by auction, however, creates the ideal environment to establish the market price at that point in time. It’s like a market price-check in a way. Auctions allow you a finite period of time to get buyers to tell the vendor what they think it is worth, who can then react to that information and choose to transact on the property or not.
Another misunderstanding about auctions is that you need half a dozen people to make it a success. That is not correct because auctions are as much a process as anything else.
Firstly, you are marketing your property with a price range or with no price – depending on the legislation in your location – which widens your potential buyer appeal. Secondly, auctions provide a timeframe to gather market information.
At the moment, it’s almost like a glorified market survey. Some vendors push back by saying they don’t want to spend $2,000, for example, on a market survey. However, if they price it incorrectly, it may ultimately cost them $50,000 because they sold it too cheaply, which a much greater price hit in the long run.
The savviest vendors understand it’s a small price to pay for accurate market intel.
Cash is cool
Also, when lending becomes tighter, it’s advantageous for vendors to attract cash buyers under auction conditions.
We recently had an auction where a buyer wanted to submit an offer after an auction, which would be under private treaty conditions such as a financial approval clause. The highest bidder at the auction, though, was about $30,000 less than that offer, so the vendor had to decide whether a conditional or unconditional contract was the most valuable. The seller opted to go with the highest bid at auction because they would have an unconditional contract that day and not have to wait to see if the other person ultimately sealed the deal.
In fact, in finance conditions like today, auctions are the best-selling technique because cash buyers are worth their weight in gold because I’ve heard that contracts are falling over time and again because of finance. One agent recently told me he had to sell a property two or three times to make it stick. Who needs that stress in your life when you can sell by auction and have certainty on price as well as a buyer’s ability to pay?