Record numbers of people are trying to sell their homes at auction – but uncertainty about the housing market means buyers aren't bidding, leaving the majority of properties unsold on auction day.
Last week the Sunday Star-Times attended auctions in Auckland, Wellington and Christchurch where 40 properties were for sale, but only six sold under the hammer.
Industry experts blame the low level of on-the-day sales on a fluctuating property market that has left buyers uncertain about market values and reluctant to commit to a purchase.
But they say a failure to sell under the hammer is not always bad news – in an uncertain market, putting a house up for auction helps buyers and sellers get a better idea of its value, and many properties go on to sell after a failed auction.
Real estate agents across the country are reporting an air of caution among buyers, most of whom are genuine home-seekers rather than investors. While residential house sale volumes have rebounded from their 10-year low in January, sales volumes are still far below normal and it is taking longer to sell homes as investors, anxious about imminent changes to tax laws, stay out of the market.
Last month 5029 dwellings sold, which is up on January's 3666 but down from 5228 sales in February 2009. Prices, though, are holding steady at around a median of $350,000.
With economic commentators picking mortgage rates will rise from mid-year, many potential buyers are taking a softly-softly approach because they do not want to over-commit.
But despite these factors, auctions are proving more popular than ever. Alistair Helm, property market commentator and CEO of website realestate.co.nz, said 12% of the property listings on his site last month were for auctions – an all-time high. Historically, the number of properties offered for auction was less than 5% of listings. "Clearly the industry is encouraging vendors to look at marketing properties at auction. It provides a public forum to assess what the market value is ... [but] are there sufficient buyers for a particular property to get the best buying experience?"
While selling by auction was a good way to determine market value, Helm said recent research by his firm suggested buyers preferred knowing in advance what price a property was likely to fetch. "If the property says it is being marketed at $350,000 they know what the expectation is."
At a Barfoot and Thompson auction of 20 properties in Auckland last week only two homes sold under the hammer – a four-bedroom home in St Heliers with a rating value of $980,000, which fetched $1.1m, and a two-bedroom flat in Epsom (valued at $375,000), which sold for $397,000.
At a Harcourts Grenadier auction in Christchurch on Thursday, the first three properties sold under the hammer, but at prices well below their rating values. One, a family home in Cashmere, sold for $440,000 despite having a rating value of $588,000. The next seven properties were passed in – five got no bids.
In Wellington, 10 homes were auctioned on Thursday by Harcourts Paraparaumu; one sold, four were under negotiation, and the other five were passed in at prices reached almost solely through vendor bids. Wayne Sutton, an auctions manager with Harcourts, said many of the homes passed in would be sold through negotiations with the highest bidder.
He said auctions were popular because market fluctuations made it difficult to determine what the appropriate price of a property was. Auctions allowed the market to determine that price.
"Buyers today are quite astute. They are doing a lot of due diligence – and not just on the properties but on the market in general. They want to get an indication of what's happening in the auction room, where they are, how much interest there is, then go away and evaluate that before they decide whether to go in with an offer."
Sutton said statistics showed auctions were still the most effective way of selling property, even if not sold on the day. "When the market was going up, in 2004/2005, we were getting 65% to 75% [sold] under the hammer. As the market changes the under-the-hammer rate changes, but the actual statistics of what sells doesn't change."
WHAT TO DO IN TODAY'S VOLATILE MARKET
There are genuine buyers but you need to be realistic about prices. It is a buyers' market so you may have to wait to get the price you want. An auction is a good way to test how the market values your property but don't bank on a bidding war. Bidders are cautious and prefer to negotiate.
If you are cashed up, now is the time to buy. It is still a buyer's market and you can still snare a bargain. Auctions are a good way to assess the market value of a property and to suss out your competition. If you keep the nerves at bay you could make a wise investment.
- Sunday Star Times