Auctions - the hottest ticket in town

REBECCA STEVENSON

The overall property market may be a little sluggish still in some parts of the country but property auctions are running hot.

Recent statistics from the real estate industry have proved what many potential house buyers have probably discovered - properties selling at auction are becoming more mainstream.

June and July saw the number of residential properties up for auction at a four-year peak, according to industry website realestate.co.nz, with 1168 homes up for auction in June and 1132 in July against a typical month of about 600 auction listings.

Auckland, always at the forefront of any property trends, saw one in five listings going to auction over the past two months and accounted for 56 per cent of the 1132 national auction listings in July.

TradeMe's Paul Ford said auction listings had "ticked up" in recent months on the site, with the most noticeable rise occurring in July, which recorded a boost in auction listings of 25 per cent on the previous month.

This increase was both because of the lift in the number of auctions listings but also because of a decrease in total listings, meaning auction listings increased proportionally, Ford said.

The increase was driven by listings in Auckland, Waikato, Christchurch, Bay of Plenty and Otago, Ford said.

These trends have been noticed by agents.

Ray White's Carey Smith said the national real estate group had seen a "substantive" lift in the group's auction listings, from 460 to 607 in the last quarter.

"The Ray White Group was appointed to over 20,000 controlled listings per annum and during 2011 14 per cent of those have been by auction and during the last quarter, this has lifted to 21 per cent," Smith said.

But are the properties at auction selling?

Yes, said the BNZ Real Estate Institute's residential market survey released earlier this month.

The survey, which collates data from the institute's members, said that agents believe more properties are selling at auction after holding negative views of auction sales in May and June.

BNZ chief economist Tony Alexander said while this wasn't an actual figure for completed auction sales it showed agents' perceptions had switched to being positive about auction sales.

Again, Smith agreed and said Ray White's "under hammer success rate" had gone from 58 per cent a year ago to 71 per cent now for auctions.

But why the sudden popularity of the auction? And what are the benefits and potential pitfalls of auctions, for sellers and for buyers?

Smith had some ideas.

"Auctions are providing vendors with the ability to polarise the buyer pool into a set time frame. With the reduced amount of stock on the market, auctions are also showing an increased response rate from buyers attending open homes and also registering to bid for properties."

In short, an auction draws a line in the sand that both seller and buyer have to adhere to.

Once the auction date is set, it's all on.

Because auctions are unconditional sales all the legwork has to be done in the lead up to auction day. That includes investigating the condition of the property, possibly organising a builder's report, reading through the paperwork like unit title and body corporate information if its an apartment or unit and most importantly, arranging your finance so you are ready to roll on auction day.

That's because if you are the winning bidder you are required to sign an unconditional cash deal on the day - if, of course, the seller's reserve has been met.

Harcourts' national auction manager Richard Valentine said auctions add impetus and urgency to the process that's good for both parties.

He said buyers can be sure they are dealing with motivated sellers, who have invested in marketing campaigns to get a result.

"In addition, at an auction buyers can compete on an equal footing with others and everything is out in the open. They can track their competitor's bids and control theirs - and if their bid is accepted it's a done deal in a very timely and straightforward fashion."

Anyone who has played the "multi-offer bid game" will know how appealing a blunt bidding duel can be in comparison.

For vendors the unconditional cash sale at auction is clearly appealing and it should also flush out more buyers, some of whom can get caught up in the moment of competing against other bidders and end up paying more than they might have offered in a less heated environment.

Smith said there had been specific examples at Ray White where an auction had "pepped up" buyer demand.

"At a recent auction held by Ray White Ponsonby price expectations were exceeded by almost 20 per cent. This was directly attributed to the auction form of marketing."

The pros and cons

Pros

No secret negotiations. An auction puts the sale process all out in the open, you are either the highest bidder - or you're not, and your property has either sold, or it hasn't.
There is no shadow boxing with another bidder, and trying to guess which magic number will secure you the property over and above someone else. For a seller, you know how much you are going to get within a matter of minutes and can control the price by setting a reserve.

You can plan ahead. Because you know when and where the auction is happening planning your strategy, including your top dollar, should be a breeze. You also must have all information to hand from the seller about the property and have any reports you have commissioned completed.

Show them/me the money. If you buy at auction the sale is unconditional, including your finance, so you have to get this organised in advance. The upside is you know what you can afford to bid and there is no anxious wait for bank approval. Of course, this is also great for the vendor.

Cons

Caught up in the moment. The auction bidding could get heated and take you, and your budget, along with it with the end result that you pay more than you had budgeted for. (This is probably a pro for the vendor, however)

Who's that bidder? Yes, it's the vendor. The vendor/auctioneer can bid against you until the reserve is met.

Out of pocket. You have had a building inspector in and had the lawyer go through the paperwork. Then you miss out at auction. Unfortunately, these bills still need to be paid.

Unconditionial. No conditions on the sale that will safeguard the buyer if something later turns out problematic such as leak issues.

- © Fairfax NZ News