Auctions paving the way in the market

The past twelve months have seen significantly more properties being marketed for sale by auction. This trend has occurred right across the country, including in areas where agents have historically been reluctant to embrace this method of sale.

So why are we seeing an uplift in the number of properties sold by auction?

The number one driver is, of course, the lack of supply and increased buyer demand. There are regular reports of auctions attracting more than ten bidders and clearance rates between 80% to 90%.

COVID-19 restrictions also contribute to the proliferation of auctions as we shifted from in-person to online auctions, which have been remarkably successful. Anecdotally, some agencies are considering moving all future auctions online — even after restrictions are fully lifted, noting that many buyers are more relaxed when bidding from their own home, and the dynamics are different when in a user-friendly environment.

Online auctions have quickly gained popularity and have become commonplace amongst buyers. People don’t need to wait around for hours until their auction commences; rather parties can bid from the comfort of their homes. The interaction between the auctioneer and bidders is relaxed, salespeople can assist the bidders if they wish, and it is easy for the auctioneer to consult the owners mid-auction if required.

Can technology replace the auctioneer?

Online auction sites have already taken over other ways of selling — Trade Me as the hub of selling household items, or Facebook Marketplace, are just some examples. These platforms have become the norm when selling such items online, and it’s easy to imagine that this could soon be much the same with properties.

However, I’m not convinced that will happen with higher-priced offerings such as fine art, bloodstock, and real estate, just yet. There is too much emotion tied up in these highly valued items.

This is where an auctioneer can bring a wide range of skills, extending far beyond simply adding numbers together. They can manage and read human interactions and the expectations of parties involved, which are crucial skills that enable auctioneers to achieve greater results than what technology, at this point, can accomplish.

Advantages of auctions in the current market

A significant advantage of an auction in a market where prices are rapidly increasing is that there is little risk of underselling. Potential purchasers suffer from a fear of missing out and will often exceed their predetermined limit to avoid having to pay more for the next property.

When the market changes, as it may well be doing in 2022, the preferred option for vendors should be to sell by auction. In changing markets where the number of bidders at auctions reduces, some salespeople recommend marketing properties by other methods of sale. However, this may not be the best advice.

Auctions are suitable for both sellers’ or buyers’ markets, but for different reasons. In a sellers’ market, auctions achieve premium results in competitive environments. In a buyers’ market, particularly where prices are easing, time becomes crucial and selling earlier rather than later benefits the client.

An auction does two things in this type of market; it places a time limit on when buyers must make a decision and act on it. Other methods of sale can involve similar elements; however, the time limit needs to be combined with open competition between buyer and buyer, not between buyer and seller.

Apart from auctions, every other method of sale creates a mindset of the buyer competing against the owner. An auction is arguably the only true form of open competition sustained by open market transparency, as buyers pay more to outbid other buyers rather than to satisfy the owner.

A shift to a preferred method of sale

As of recent times, the broader public has begun to accept auctions as mainstream and often the preferred method of sale. In the late 1990s, auctions were few and far between — viewed by the public and the majority of the profession as a method used when desperate to sell. I recall speaking to vendors who would tell me that they were not under pressure to sell, so did not need to auction.

A blanket view across New Zealand was that an auction was typically a last resort method of sale, and back then, was largely associated with mortgagee sales. With persistence, hard work, and skill, a dedicated group of auctioneers who worked with agents and vendors turned this perception of auctions around in the late 1990s and 2000s.

Running parallel to this change was the expansion and improvement of marketing to promote properties effectively. With encouragement, sellers began to see the benefits of marketing their property properly. From virtually no client investment in the 1990s, it is now assumed by nearly every seller that they need to invest in marketing to ensure the best result.

While it took time and education, auctions now account for a significant percentage of all real estate sales across the country and vendors investing in marketing has become regular practice — according to REINZ data, in December 2021, 30.5% of sales were by auction.

What’s more, this shift in mindset around the potential of auctions proves that perceptions can change over time and that the market can adapt to new ways of doing things — even if the pandemic is the catalyst for this!

AN AUCTION IS ARGUABLY THE ONLY TRUE FORM OF OPEN COMPETITION SUSTAINED BY OPEN MARKET TRANSPARENCY, AS BUYERS PAY MORE TO OUTBID OTHER BUYERS RATHER THAN TO SATISFY THE OWNER.

John Abbott

Real Estate Sales Coach and Auctioneer