This is quiet possibly one of the most debated topics in the real estate world, and also one of the scariest for sellers and buyers alike.
People have very different opinions of auctions, varying from “it’s the only way to sell”, to “would never do it”. Everybody’s situation is different, and you as a seller need to consider what your needs are and how they will best be met.
An auction will get your property sold on the day as long as at least one buyer turns up and you are prepared to say yes to the highest bid. This may be suitable to you if you are in a difficult situation financially, for example you have already purchased another property and your mortgage repayments are crippling you. The buyer is locked in on the drop of the hammer so there is no cooling off period to worry about.
Most agents who promote sale by auction suggest that the competition between buyers will drive the price up, and indeed that may be so as long as there are enough buyers there on the day with the right sort of dollars.
Some other considerations should be:
1. that to have an auction you need more than one buyer.
2. If the property doesn’t sell at auction it can be labeled as a failure.
3. In the majority of cases you may not receive the highest price.
Let’s look at the highest price a little deeper, and you need to read this slowly so you absorb what we are saying…. the successful bidder only has to make a single bid above that of the under-bidder to win.
You may never know how much the successful bidder was really prepared to pay. The only person we definitely know that was prepared to pay their maximum was the under bidder, the one who missed out. For example:-
Mary has $380,000 to spend at the auction
Peter has $350,000
Mark has $335,000
These are the maximum dollars that these people are prepared to spend and each of them are prepared to go as high as their maximum to get the property.
When Mark places his bid of $335,000 and Peter bids $340,000 that takes Mark out of the game. Now as soon as Peter reaches his limit of $350,000, Mary is going to bid $355,000 or perhaps if she is playing it really clever $351,000.
Lets assume the best case scenario… Mary bids $355,000. She is now the highest bidder but yet secretly, she was prepared to spend up to $380,000 to secure the property, she walks away very happy as she has saved herself $25,000. Now imagine 3 months later you bump into Mary down the street, you ask how she going and she tells you that she absolutely loves it there, the home is her dream and you say jokingly… well you should paid us more! and she says innocently… to be honest I was prepared to go as high as $380,000. Instant deflation. You can’t ask for it now. You get one shot as selling and it needs to be the best.
This can be one of the worst pit-falls associated with auctions.
Buyers may also be wary of auctions, as there is an air of uncertainty with regard to what price the property may sell for. They would like to be certain they are in with a chance before spending money on building & pest inspections etc. Imagine if they have been interested in other properties, had all the inspections done and missed out. They’ve probably lost a couple of thousand dollars. How keen would they be to do it again with the uncertainty?