Two major disadvantages for vendors auctioning property: NO GUARANTEE of ʻtop priceʼ and a CONSISTENT FAILURE to achieve maximum price. Property sellers need to become street smart – DON’T be seduced by the hype, the promises and the ʻglitzʼ of the auction ʻtheatreʼ.
A big fallacy / ʻporkyʼ
“Auction is one of the fairest and best methods of selling property”. Dummy bidders remain active, auctioneers take bids from trees and passing cars, auctioneersʼ assistants write down ʻthe bidsʼ, most auction attendees are none the wiser, and property journalists report each Monday on ʻauction clearancesʼ when they should be focusing on auction failure rates for the benefit of prospective sellers of property.
Auctions advantage buyers, reap huge rewards for auctioning agencies, and short-sell valuable properties by huge amounts of money – from $10,000 to $10m or more. Donʼt be sucked in.
ʻVendor biddingʼ at auctions: An absurdity, a nonsense, and counter-productive for vendors in terms of protecting the property’s market value.
Evidence that auctions disadvantage vendors: Outcomes of > 30,000 auctions of residential, commercial and rural property in all States of Australia through the 1980’s, ’90s and 2000’s. The data has been supplied by the property industry, but prior to release of the BHO Document, no investigative journalist had collated and published it for the benefit of property owners and prospective vendors.
ʻAuction Promotionʼ
A huge waste of vendorsʼ money by auctioning agencies which use it for their own benefit. Advertising kickbacks are banked, with vendors none the wiser. As Billy C would say: ”Itʼs your money!” Typical “free advice” included in a newspaper advertorial by the director of an estate agency : “Most vendors need to spend between $10,000 and $20,000 for an effective auction promotion campaign.
WARNING to SELLERS
You should NOT follow such advice because your hard-earned savings of $10,000 to $20,000 will go towards promoting the auctioning agency’s business and will not guarantee that your property will sell for maximum market price.
A real estate insider ʻspills the beansʼ on “the trade secrets real estate agents donʼt want you to know”. Vendors need to be aware of how some estate agents deceive their clients.
Flagrant abuse of the ʻin-houseʼ auction system by one of Australia’s major estate agencies and its men in black.
Mortgagee Auctions allow vulture buyers and listing agents to triumph. Banks and other lenders should abandon this irrational and unjust practice so they can help borrowers preserve their equity and for lenders to recoup most/all of their loans. Mortgagors have the upper hand; because the mortgage market is highly competitive, lenders will not risk losing clients by refusing fair and reasonable requests for a simple amendment to the wording of a mortgage contract.
The benefit of hindsight
How senior executives of Australia’s major banks allowed their valuable suburban branches to be sold at ‘bulk auctions’ for less than maximum prices, and in so doing short-sold the banksʼ shareholders.
“The property is on the market”
Uninformed vendors are easily conned, buyers are placed in the box seat, and there’s no way maximum sale price can be guaranteed – BUT the listing agents have twisted the vendor’s arm and ‘wrapped up’ the outcome of the auction so that their mega commission is guaranteed.
“The market is telling us this is the best price you can expect ……”
Another way gullible and uninformed vendors are conned and silenced.
The industryʼs self-doubt over the auction system: The tendency to revert from auction to ʻExpressions of Interestʼ when the market slows. Agents are confused, as are sellers and buyers.
Two very big ‘porkies’
“AUCTIONS – THE FACTS !!! Of the last 130 properties I have auctioned over the past 3 years, 123 have been sold, and 100 of these sold under my hammer !!! – Estate agency principal’s / auctioneer’s promotional advert in a community newspaper. Without his knowledge, his auctions and dummy bidding by his faithful personal stooge were closely monitored every few weeks over a period of many years; as disclosed in the BHO Document, the auctioneer’s claims do not equate with reality and his auction practices are dishonest, as were those of Auctioneer ‘J’ (referred to below) who on one occasion was the only “bidder” at an auctioned residence close to a prestigious private girls’ school; ‘J’, as the only “bidder”, had the audacity to pretend in full view of the auction crowd that he was not acquainted with his fellow agency Director and auctioneer whose hand he shook as the ‘highest bidder’. ‘J’, as “a respected member of the community” and Director of “one of Australia’s leading real estate groups”, served on the Board of the prestigious girls’ school.
“Bellevue Hill property Le Manoir sold for $23m at auction …..” Probably $2m below the limit of the successful buyer’s whose net worth exceeds $250m and who subsequently spent millions upgrading the property.
Property Buyer’s Agent: “I estimate that 70-80 per cent of properties are sold below their true value, other than those that are sold at auction past their reserve”.
Counterview
The correct figure of undersold properties would be closer to 95%, including many that sell for prices above their reserve because agents are not infallible when ‘guestimating’ / appraising property.
“Does Western Australia have the auction jitters?” Probably. Many Perth property vendors are very cautious and more savvy than their eastern States counterparts.
“CBD Office building sold after auction for $9.5m, well below its last sale price of $24m.” All owners of commercial property should take careful note of this particular sale and resale, and also note how the selling agency devalued the property with its counter-productive ‘promotional campaign’ financed by the hapless and poorly informed vendor.
The MYTH
A contemporary home with water views, situated on a 5,000 sqm block, which was predicted by the listing agency to sell at auction for $10m to $15m.
The REALITY
After 27 bids (at least 22 of which were ‘vendor bids’ / dummy bids), it was passed in for $9.5m, and sold months later for $7.45m – way below its passed-in price of $9.5m. Auctioneer ‘J’ has since retired, but listing agents ‘M’ and ‘W’ are still auctioning property. VENDORS BEWARE AUCTION and the associated deception, including the auction condition of a limit of “10 vendor bids as laid down by the Real Estate Institute of …..” and the flagrant abuse of this condition that is claimed by the Institute to “protect” buyers’ interests.
The strategically-located CBD building that sold ‘under the hammer’ for $69m, with the successful buyer revealing after auction he believed that the property was worth close to $100m. All owners of CBD buildings should read the account of this auction to understand why the Buyer’s Highest Offer method of sale is vastly superior to auction and all other sale methods advocated by the real estate industry. Imagine your valuable commercial property being UNDERSOLD by $11m, $21m, or $31m.
“Melbourne drops the hammer” / “I didn’t want …. an auction campaign of 4-5 weeks …. and then the property not selling” (vendor). Smart thinking on the vendor’s part, but pity he chose another flawed sale method as the alternative.
POINTS, COUNTERPOINTS; CLAIMS, COUNTERCLAIMS related to the 2010 Season of TV programs on Property Auctions. Read the transcripts in the BHO Document to find out how these auctions were conducted, note the advice dispensed to stressed vendors by agents and auctioneers during pauses in auction proceedings and after some of the properties were passed in; you will then understand how sellers are pressured to sell for less than maximum price so negotiators can ‘seal the deal’ and secure their commissions.
“Lyrical auctioneer takes title” (with some help from a Louis Armstrong song): “I see trees of green, skies of blue, ………… and I think of myself …… this wonderful world ……” . BUT for whose benefit?
“Ray White at the Opera House 7.00pm Monday 8, November 2010. An eclectic collection of some of the finest properties in New South Wales and Queensland to be presented for sale by auction in Australia’s most iconic major event venue. rwla.com.au”
Despite the disastrous outcome of this ‘gala’ event (very low clearance), the auctioning agency announced immediately after the event that similar auctions would be held in 2011. Vendors need to take note of the failed auctions, BEWARE, and NEVER AUCTION YOUR PROPERTY.
Deja vu: Ray White’s Gold Coast residential property auction January 2014: ZERO CLEARANCE UNDER THE HAMMER. Feigned ‘shock’ by ‘market analysts’? or are they truly unaware of the realities and sales data confirming that auctions are highly disadvantageous for sellers and highly advantageous for savvy buyers and the listing agents?
March 2011: Real Estate Institute of Western Australia President’s candid public admission on the auction system, and a Devil’s Advocate response to the President’s comments: Following another weekend in Perth where the residential auction clearance rate was again below 10 per cent, an article on the ‘bleak Perth real estate market’ by Ashlee Mullany in Perth’s Sunday Times newspaper on March 6, 2011 included two comments by Alan Bourke, President of the Western Australian Branch of the Real Estate Institute of Australia: “Auctions are a poor choice for sellers” / “Auctions limit the number of buyers for a property”. Such an admission by REIWA’s President and principal of a real estate firm who has previously advocated the auction system in his weekly newspaper column in The West Australian, concurs with criticisms of auctions expressed in the BHO Document.
June 2011 UPDATE. REIWA President’s about turn on auctions 2 months after claiming: “Auctions are a poor choice for sellers”. The June 4 – 5, 2011 edition of The West Australian newspaper featured an article by Alan Bourke, President of the Western Australian Branch of the Real Estate Institute of Australia. The title of the article was: Auction can often push up the sale price.
Extract from the article: “Have you thought of selling by auction? An auction with its short but high-profile marketing campaign can be very effective at bringing out the more serious buyers. At a time when so many properties are listed online for sale and buyers are spoiled for choice, an auction might be just the thing you need to give your property the edge it needs to attract attention.” Did the President come under pressure from Institute members to recant?
October 2011: The Channel 10 finale of the Renovators provided further proof on how far below fair value auctioned properties sell for. The BHO Document summarises the 6 auctions; readers will understand by how much the dedicated, skilled, and hard-working renovators were ‘dudded’ by the auction system.
2012 – 2013: Weekly reports of residential property auctions revealed ‘clearances’ ranging from 35% (Brisbane) to 80% (Sydney & Melbourne). As the data included properties which were passed in and sold through ‘negotiations’, the vast majority of those sold would have fetched less than maximum sale prices. The BHO sale method would have resulted in 100% of those offered at auction (and which failed to achieve ‘top price’) being sold for absolute maximum market price.
June 2014: Quote from an article by Larry Schlesinger in the Weekend Australian Financial Review ( Hammer falls on dirty tricks )
” …. the oft-repeated claim by auctioneers and estate agents that buying under auction conditions is the best way to secure property.” VENDORS SHOULD NOTE THIS CLAIM AND NEVER USE AUCTION. The claim confirms that estate agents place vendors’ interests last, ignoring the fact that vendors pay the sale commission. Agents place their vested financial interests first and on par with buyers’ interests, because without a buyer there can be no sale and therefore no commission. The BHO Document details numerous examples confirming agents’ and auctioneers’ claim that “… buying under auction conditions is the best way to secure property”. Best way for buyers yes, because they can acquire property at prices below their limits, but one of the worst ways for vendors because they fail to achieve maximum possible sale price.