Call to regulate or ban property auctions that 'crucify' first home buyers

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A financial adviser has called for property auctions to be more tightly regulated or banned because they “crucify” first home buyers.

Rod Schubert, managing director of Rod Schubert Financial Advice (RSFA), said first home buyers often found themselves forking out $2000 for valuations and building reports before they could raise their hand in an auction room.

“It is jaw dropping what this entails in terms of the average estimated cost to the first home buyer, and goes something like this: $1,000 for a valuation, $500-$600 for a full building report, say $300-$400 for checking a LIM and title,” Schubert said.

“If they were heading to a few auctions, let’s say five, that wipes $10,000 off their hard-earned deposit.”

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“It is crucifying first home buyers and causing what would otherwise be a less chaotic environment.”

Schubert’s estimation of $1,000 for a valuation was based on a home priced at $1.2 million, which was becoming common in his main markets of Auckland, Tauranga, and Queenstown.

Rod Schubert is the managing director of Rod Schubert Financial Advice (RSFA).
RSFA/Supplied
Rod Schubert is the managing director of Rod Schubert Financial Advice (RSFA).

Schubert estimated 80 per cent of buyers would not bid at auction due to fear, anxiety or not being ready to fulfil the requirements of making an unconditional offer.

That cuts them off from an increasingly large part of the market. In 2018 and 2019, only 10-20 per cent of property sales were through auction, according to CoreLogic data.

Today, that figure has jumped to around 60 per cent in Auckland, and in Christchurch roughly half now go under the hammer.

“Many may just bypass the listing and try to find something by negotiation,” Schubert said.

A spokeswoman for Housing Minister Megan Woods said the Government had no plans to regulate auctions.

Auctions now make up the majority of sales in Auckland, but some say they exclude first home buyers
Alden Williams/Stuff
Auctions now make up the majority of sales in Auckland, but some say they exclude first home buyers

Requirements to bid vary

Hopeful bidders usually require pre-approved finance from their lender, regardless of deposit size.

An ASB spokeswoman said requirements for pre-approval, which might include the need to provide a registered valuation, varied based on a number of factors, for example the type of property or deposit amount.

A Westpac NZ spokesman said the bank generally required a full market valuation for lending above 80 per cent loan to value ratio.

“A builder’s report is not usually a condition of a loan approval, however we encourage buyers to obtain a report as part of their due diligence.”

Call for regulation

Schubert said auctions should only be permissible where agents are mandated by law to prove their advice as to why an auction was recommended and in the best interest of the client.

“I’d personally like to understand from a government level, how we can possibly profess to be in the first home buyer court on this matter, as it is yet another inaction and broken promise, in a broken real estate system.”

Real Estate Institute chief executive Jen Baird says auctions are a good way to keep up with market prices
Supplied
Real Estate Institute chief executive Jen Baird says auctions are a good way to keep up with market prices

Real Estate Institute of New Zealandchief executive Jen Baird said agents had a fiduciary duty to act in the best interest of their client and in accordance with the client’s instruction.

“In a market where prices are rising in excess of 10-15% annually, it is usual to see an increase in the number of properties being sold by auction.

“Auctions are a good way of finding the market value of a property when the market is moving at pace and, from a buyer's perspective, provide the transparency of an open market.

She said auctioneers and agents must adhere to guidelines when selling a property by auction, such as the auctioneer not being able to place a vendor bid above the reserve price and the agent not being able to share the reserve price with potential purchasers.

Cost of valuations criticised

Mortgage broker Tracey Topp says valuation costs have skyrocketed in recent times
Tracey Topp/Supplied
Mortgage broker Tracey Topp says valuation costs have skyrocketed in recent times

Tracey Topp is a mortgage broker and an admin for the 36,000-member-strong Kiwi First Home Buyers Group Facebook page.

She agreed auctions needed to be more tightly regulated to be fairer for first home buyers, and said the situation was being made worse by skyrocketing valuation costs.

She said a recent client spent $2,500 on a valuation that a year before would have cost $900-$1,500.

“I’m also on a page of mortgage advisors, and we have a lot of chatter at the moment about how the valuers of the valuation companies are charging astronomical amounts of money.”

“I went through one client who the only option they felt they had was going through auction, and I think they did three or four valuations before they got their property.”

“That was money that could have gone to their deposit.”

Neither the Government nor the industry body representing valuers monitored the prices being charged, and valuers Stuff spoke to were unwilling to divulge how prices had changed.

Minister for Land Information Damien O'Connor said he was unaware of any agency that monitors valuation costs.
ROBERT KITCHIN/Stuff
Minister for Land Information Damien O'Connor said he was unaware of any agency that monitors valuation costs.

Minister for Land Information Damien O'Connor said the price for a valuation was set by the market, and the Office of the Valuer-General did not track private valuation fees.

“The NZ Institute of Valuers (NZIV) Code of Ethics (1996) requires a valuer’s fee to be reasonable for the work involved,” he said.

NZIV President Adam Binns said the institute did not set prices or monitor them.

Opteon managing director Scott Chapman agreed fees had increased due to market demand.
Opteon/Supplied
Opteon managing director Scott Chapman agreed fees had increased due to market demand.

Opteon claims to be the largest independent valuation firm in New Zealand.

It’s managing director, Scott Chapman, said the booming property market meant demand for valuations had increased substantially.

He said fees had remained “fairly static” but valuations varied depending on demand.

“When markets values are moving quite quickly as they have done recently, the valuer needs to invest significant time in assessing the market evidence, risks and market value.

“Opteon’s quote is reflective of numerous factors for example the overall complexity, urgency and time required to complete the instruction.”

Chapman said professional indemnity insurance premiums seemed to have increased recently, potentially placing a new cost burden on valuers.