Why Agents Push Auctions!

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Why Agents Push Auctions!

Here we are in the second week of December and agents are at it again making sure they squeeze in as many auctions before Christmas as they can. Even late night auctions just to get a sale before Christmas.

Its not just pushing auctions that is the problem, many agents and talking down the market to condition their vendors to accept a low price. ....Here's why!

Agents want to kick start 2019 with commissions rolling in.

You see it's not about you the vendor, it's what's in it for the agent. If your property isnt sold in November it is much harder to sell in December or January which means no commissions for 3-4 months. OUCH!

Right now clearance rates for auctions are at 40%and yet agents are still advising their clients to spend money on auction campaigns when ONLY 4 out of 10 houses will sell at auction each weekend.

Think of it this way, if there are 30 properties listed for auction next weekend then 12 may sell and 18 unlikely.

The cost to go to auction whether you sell or not ranges from $1200 to $3000 just for paper advertising.  Lets  average it at say $1500 per property, that means $27,000 of hard earned vendor cash goes up in smoke each week with failed auctions forced upon vendor by agents lying about why they're selling by auction.   

So with clearance rates so bad and agents knowing this, why then are agents still pushing auctions?

Good questions. To answer it I want you to START TO THINK LIKE AN AGENT THINKS.

I want you to slip into a fancy suit, a new European car with a $1000-$2000 a month lease, plus phone costs, fuel costs, personal advertising costs, you name it. They need the money!!! With December and Jan typically very quiet they want to guarantee they're getting paid as early as possible in 2019. 

Agency owners train their sales consultants on how to convince vendors to pay for 4-5 weeks of paper advertising to sell at auction. They'll say Mr or Mrs Vendor auctions are the best way to sell real estate.

So do you know why they say this?

Because selling by auction guarantees a 10% deposit on the fall of the hammer and settlements are typically 30 to 60 days following the auction.

This means the agency and agent are paid within 30-60 days either from deposit or at settlement.

They don't want a private sale because it doesn't have an end date, a decision date for the buyer, they don't want someone offering a 5% deposit and they definitely don't want a settlement longer than 30 or 60 days. 

You see its not about you the vendor achieving the best price, its about how quickly the agency and agent can get paid. 

An auction is a public auction, a private sale is a private auction. 

At a public auction everyone needs to disclose their hand publicly. 

On a private sale/private auction no one knows what anyone else is offering or the terms that buyer has put forward which could often be more for the property to lengthen or shorten a settlement. 

Auctions more often than not will achieve the second highest price NOT the highest price and here's why!

Two people bidding at an auction.

One has a budget of $900,000 and the other $840,000.

Once the buyer with $840,000 hits the top of their mark they stop bidding, they can't afford to bid any higher.

The buyer a $900,000 budget to spend on the same property needs only bid to $845,000 to secure the home. 

Done deal no better bid! That's a loss of potentially $55,000 to the vendor by taking it to auction instead of selling privately. 

At a private sale the buyer with $900,000 could easily bid anywhere from 845,000 to the full $900,000 because that's within their budget . Private sale the vendor thereby achieves a higher price.

What's more auctions prevent some buyers from bidding,

  1. the buyer is unable to attend the auction
  2. The buyer may not have immediate access to a full deposit needed under auction rules,
  3. they may require a settlement well in excess of 30 or 60 days or 
  4. they may have some other special conditions that need to be considered but still suitable to the vendor.

The only time you should use an auction is,

  1. If you don't want the purchaser to buy subject to a condition such as, subject to finance, or subject to building or pest inspection etc. At auction the contract is unconditional.
  2. If you're looking to sell your house fast, auctions are an ideal option for you. Providing there is enough interest in the property, and you set a realistic reserve on your property (generally 75-80% of the market value), your property will sell quickly at an auction.
  3. Less time on the market is certainly less disruptive so a fixed term shorter campaign may be the answer. 

Apart from these reasons above you should always sell by private auction.

Auctions eliminate too many buyers from the equation. 

Don't get sold short by agents looking after their own best interest, NOT yours!