House auctions bounce back
The gavel comes down, the auctioneer cries "Sold!", and the vendors sigh with relief.
Another property is sold by auction, one of the 11,950 that successfully went under the hammer last year.
Statistics show auctions are back with a vengeance. There were just 7100 auctions in 2011, as the property market in general struggled to rebuild previously strong levels of turnover.
Auctions work best when there are plenty of buyers in the market, so the 68 per cent jump in auctions last year is seen as a sign of good health for the real estate industry.
They're "a bit like Brylcreem", reckons Real Estate Institute chief executive Helen O'Sullivan - either in or out of favour.
"They work extremely well when there is competition for a property. For properties that have broad appeal or where more than one party is interested in them, it works really well."
The auction comeback trail is easy to see. Auctions now account for 16 per cent of all house sales, compared to 11 per cent the previous year.
As one might expect, the City of Sails clearly leads the rest of the country, with an auction growth rate of 86 per cent. Even outside the Auckland housing bubble, auctions still grew a healthy 33 per cent last year.
However, like the real estate market more generally, the return of auctions is largely an Auckland-Christchurch story, where housing shortages prevail.
In Auckland, where more than 70 per cent of all last year's auctions occurred, over a third of all the property sales last month were made under the hammer.
But don't believe all you hear about auctions in Auckland, laughs Bayley Auckland's Daniel Coulson, the reigning Australian auctioneering champion.
"You can get as many as 15 potential bidders at an auction but sometimes you've only got the two, or even one. And you can still work with just the one on the day, it's not a standard auction, it's more a negotiation."
That might not sound like much of an outcome, but Coulson says most vendors "would be over the moon" to have two or three unconditional offers laid on their doorstep.
It's easy to see why auctions work better in a hot market. They unashamedly work off emotion, encouraging buyers to strike while the iron is hot. In a downturn, buyers can afford to negotiate more cautiously.
But fans of the auction system argue it's more transparent than tenders. Tenders can be conditional, but the bidder may only get one chance to bid and largely takes a stab in the dark.
Auction bids are unconditional but buyers can eyeball their competition, and take comfort from the knowledge that others can see value in the property.
Kapiti auctioneer Wayne Sutton believes the rise in auctions fits with an increase in due diligence since the global financial crisis.
"Buyers really do their research more than I've ever seen and the auction negotiation process allows them to grab it with both hands.
"With the tender process, even though it's very professionally done, buyers are starting to reject the fact that they're being asked to put their best foot forward blind."
Coulson adds that auction buyers appear to have fewer regrets.
Successful tender bidders never know whether they've paid too much. Unsuccessful bidders go, "Oh gee, if only we'd had a chance to put a little bit more on top, if only we knew we had to pay that we probably would have."
For vendors, the auction process can also be a cleaner process, says Helen O'Sullivan. It allows them to bypass a prospective pile of offers, all with their own conditions.
"The potential for that to get uncomfortable is quite high."
Which is not to say auctions aren't nerve-racking. "It's like a party, worrying whether anyone's going to turn up," says Harcourts' agent Marty Scott.
One city which so far has largely resisted the auction process is Wellington - regarded among agents as the "tender capital".
Scott, who heads Harcourts' Team Wellington branch, thinks it's a mindset left over from the days of government tenders but he believes attitudes are changing towards auctions.
"The advocates of auctions would tell you the problem with tender is that it doesn't put enough pressure on the buyers in terms of extracting the maximum amount."
In post-earthquake Christchurch, it's a different story. Auctions are on the rise, due in part to increased competition for housing but also as a way of re-establishing market values.
Chris Kennedy, a top auctioneer and Harcourts Christchurch's business development manager, says auctions through his agency went up 37 per cent in the Garden City last year.
About a fifth of all its sales now go under the hammer.
After the earthquakes, "the whole city was revalued", he says. But after 8000 to 10,000 houses were taken out of the market, a housing shortage began to bite.
"People have been forced to pay to secure a property."
Kennedy says people have warmed to auctions, particularly if they've had to leave the city quickly.
- © Fairfax NZ News