Under the hammer

UNDER THE HAMMER

Traditionally the summer season means more properties on the market, with lots of activity in the Christmas lead-up and February to May period.

The bulk of sales are by negotiation, but figures show that auctions have become a more popular selling medium. Mike Williams of Barfoot and Thompson, Auckland says sales made by auction are up 25% this year.

When Mike joined Barfoot and Thompson in 1992 as their sole auctioneer, sales totalled about 250 a year. Now the figure is about 2,300 (plus another 2,000 odd by tender).

Mike says sale by auction means you get the main active buyers looking at your property. He explained that there are three stages in the auction system, starting with the marketing period (the first four weeks), then the actual event and finally post auction.

With over 11,000 auctions to his credit, Ross Foreman, of Bayley’s, Mt. Eden, Auckland describes the auction as a process. “It has been going since the Babylonians and is an accurate way of determining what the value is whenever there are clearly two or more buyers”.

The process starts with promotion. As rule of thumb this is 1% of the vendor’s ideal price. It can be local property press ads or something with national or international exposure. It offers details, and viewing options.

It is information gathered during these visits that offers the feedback to the buyer to set their auction reserve.

Mike says the owner sets a reserve in the last 24hours before the auction.

Ross advises vendors to set the reserve where they are comfortable but would also say, “This is where we wouldn’t let you sell it at”.

Both confirm the reserve should be confidential to the auctioneer, the listing agent and the owner and should be the best price the vendor is prepared to sell the property at, on the day.

Auction terms are standardized in the industry with companies operating under documents approved by the Real Estate Institute, but the practice is different. Barfoot and Thompson have two main areas of difference. They are non-franchised with a central document holding office, where all registrations on the property are held, to enable all parties to be notified should there be pre-action offers, and they have no vendor bidding.

For Ross Foreman, however, vendor bidding is the vendor’s right to protect their goods, although he agrees there has been misuse of it. “It should only be used by the auctioneer and announced as such. We would make it under broadly 10 to 15% of the properties’ real value. We won’t have a bar of a bid like that from the floor”.

Mike has found people in NZ have got over their fear of auctions, but are sometimes reluctant to start the bidding. “Although we don’t have vendor bidders, I have a right not to accept a bid and in a situation where there might be only one potential bidder, I might lead by suggesting a fair and real opening bid”.

And the consensus is that auctions are better held in the rooms rather than on site to ensure you get people who are serious.

Mike says as far as pre-auction selling is concerned, “I’m of the view, whatever is conceived to be the best for the vendor. If there were a lot of interest, you would be better to go to auction. Likewise any property requiring a quick cash sale might be best auctioned.

Ross says he has sold anything from burnt out houses to half finished houses on six acres of gorse. “If an owner is willing to spend money on selling his house and puts it on without a price, it will get sold”. Generally he is not keen to see sales before auction. “I would never say don’t sell prior, but when there’s a decision made to go to auction, you need to make sure you have uncovered every prospect. We are in the competition business not the transaction business”.

As a potential bidder, you can vary the auction particulars and conditions of sale, subject to the vendor’s approval. This generally relates to the settlement date and deposit (normally 10%).

If you can’t be there on the day, a special form can be faxed through to the vendor to sign, to enable you to phone bid, or you could send along your authorised agent who could be your solicitor or a trustee. A successful bidder must pay the deposit on the day and settle on the due date, so must either be in an unconditional position or have arranged bridging finance.

©2003 Linda Donald
All rights reserved
Appeared in The New Zealand Property Magazine