There are early signs that the property market is tipping back into equilibrium as listing levels creep up (currently at 3-year highs), numbers through home opens edge back and inflationary pressures bite. Although, it remains a sellers’ market with the balance between supply and demand still a long way from equal.
With high demand for quality homes, our most popular method of sale – private treaty – is attracting multiple offers and because buyers are making offers ‘blind’, it is possible to have a large gap between the best offer and the one second in line.
the very definition of fair market value
The auction process is different, of course, with buyers unlikely to bid much above a competing buyer. It is reasonable to conclude, therefore, that selling by private treaty could deliver superior outcomes than an auction in the current market. But this is not necessarily the case.
In such a strong market, buyers in open bidding competition know precisely what they need to pay to prevail at auction. With private treaty, buyers will often hold back from their maximum price hopeful they’ll get a chance to further negotiate with the seller. The seller may choose to accept the best offer, perhaps unsure if they’ve extracted the best price. At auction, the seller knows they’ve extracted the best possible price from those bidding in open competition once beyond the reserve.
At auction, sellers benefit from a cash, usually unconditional contract, a settlement period that suits their needs, a healthy deposit and the delivery of what is the very definition of fair market value. The “no price” marketing strategy in the lead up to the auction day also helps as it captures all possible buyers, including those that may not otherwise consider the property if on the market at a declared price. The “start low, end high” nature of auctions also discharges agents’ fiduciary responsibility of obtaining the best possible outcome.
The auction process also “shakes the buyer tree” and reveals all potential buyers active in the market. Once past the reserve price, a skilled auctioneer will extract the best outcome and if two or more competing and motivated bidders are participating, the result is likely to exceed the seller’s expectations.
An auction campaign also gives sellers the chance to extract strong offers prior to auction day as some buyers may fear a bidding war on the day of auction. And most properties that fail to reach reserve price on the day and pass-in sell in the days following.
To give themselves the best possible chance of selling well at auction, sellers ought to set a realistic reserve price and talk to their auctioneer about having some flexibility around the reserve and how this may work on the day.
When selling, be sure to ask your agent about all the options when coming to market as there’s benefits with all methods of sale, including an auction.
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