1 February 2016

Why Auctions Work

Just as every property is unique, there is no one market price.


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‘What does the vendor want?'
‘What do you think its worth?'

These are probably the two most frequently asked questions of real estate agents and it is highly unlikely to elicit a satisfying reply.

There are two things we know from our day to day experience working in the industry. Sellers don’t know what they’ll ultimately achieve or accept and buyers don’t know what they’ll ultimately pay.

As a typical owner, when I put my property on the market, I select anything which reinforces my belief that my property has a high value. Invariably my expectation is well above the real value. For this reason, it is probably going to have a major detrimental effect upon the ultimate sale price if the agent tells people what I want - they will be driven away after realising I am being unreasonable in my expectation. Similarly, if as an agent we speculate on price and that figure turns out to be reasonably above or below the eventual sale price, we are in trouble with regards to the Sale of Goods Act and misrepresentation around sale price.

Our job is to provide the seller with as much information as we can find to assist them to make a decision around whether to sell and what ultimately is the price they will accept on sale day. This information includes properties in the market that are in competition to theirs, recent sales in the area, open home comments and anything else which may affect their ultimate sale price.

Our auctioneer Gavin Croft in action.

Our auctioneer Gavin Croft in action.

Similarly, buyers know what they would like to pay but not what they will ultimately pay if competing with others in an open, transparent process. It is an interesting human trait that we often don’t trust our own judgement, but we trust the judgement of a buyer across the auction room. If they are willing to pay more than we set as our top assessment of value, it must be worth it and we’ll bid higher. To assist buyers assessing value, the agent will provide a selection of actual sales in the area and the buyer can calculate the ‘value of the home to them’. Interest predictions, personal circumstances, world events all play a part and are assessed differently for every buyer.

Just as every property is unique, there is no one market price - there are as many market prices as there are potential buyers.

Ask serious questions of any agent who believes ‘they know value’. The best way to assess what the market will pay is to attract as many potential purchasers within a broad price bracket, place them in a public forum where everything is transparent and ask the question - ‘what is the most each of you is willing to pay’.

This is the auction process and it treats all parties openly, respectfully and fairly. It is then up to the seller to decide whether the top offer is sufficient enough to enable them to achieve what it is that they set when placing their home on the market.

 

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