To sell at auction or to not sell at auction? That is the burning question on many first time sellers’ minds.
Auctions are no longer just the go to method for sellers desperate to make a quick sale. In Australia auctions are becoming an increasingly popular way of selling because a) they show you are committed to making a fast sale by a fixed date, b) almost all property types can be sold by auction and c) if your property is in good demand it can drive up the sale price.
When you go to sell your property there are three different options available:
- Tender (expressions of interest)
- Private sale
To help you make a more informed choice on whether or not an auction might be the way to go, we’ve weighed up some of the benefits and limitations to consider before putting your home under the hammer.
What are the benefits and limitations of selling at auction?
- Drives competition. If competition heats up amongst bidders and you have a skilful auctioneer you could achieve a sales price that exceeds your expectations and property value. Buyers can end up paying far more than they planned due to the pressure and contest on auction day.
- Generates a sense of urgency. Having a set date for the sale of your home pushes prospective buyers to take decisive action towards buying the property and they come prepared to make a quick decision on auction day.
- You have control over the marketing spend and advertising of your auction.
- Reserve price protection. After assessing the information collected at your open for inspection, to judge the likely bidding strength and interest of prospective buyers, you set a reserve price with your agent. This is good for you as it means the property will not sell unless the bidding reaches the pre-agreed level that you’re comfortable with.
- Auctions can maximise profits and drive the sale price up. As there is no set ceiling price you could potentially achieve a price well above your reserve and expectations, especially if a bidding war breaks out where buyers push each other to bid higher than they originally intended on spending.
- Specific terms of sale. Another benefit of auction is you can set the terms you want surrounding the sale. You can have an unconditional sale (no cooling off period) if you want and you also have a say over setting the terms of settlement.
- Opportunity for a second chance. When a property is passed in you can be put in direct contact with the highest bidder/most likely buyer and enter into private negotiations to sell your home.
- Early sales can occur. This is where buyers feel compelled to make an early offer to buy the property before the auction because they’re concerned the competition will be fierce at auction. If this situation arises this can be a good way to go because you don’t have to go through the stress, risk and cost of carrying out the actual auction.
- Distinctive and unique homes typically go well at auction because they can attract many genuine and competitive bidders.
- Expenses. There are several costs to be aware of when selling at auction. You will need to pay for hiring a specialist auctioneer and cover the costs of all the marketing and advertising campaigns, even if your property doesn’t sell. The Sydney Morning Herald reported the cost of marketing a home for auction could be as high as one per cent of the value of the property.
- Eliminates buyers. Some homebuyers simply dislike the speed, stress and competitive nature of auctions and won’t bother looking at a property that’s being sold at auction. Other buyers can become upset if a property is passed in on auction day and walk away from the deal. Also, many states (SA, QLD and NSW) require buyers to register to be eligible to bid before the auction. Some buyers don’t like this extra hassle and won’t even look into properties going to auction because of it. Buyers also hate the inconvenience and cost of having to carry out building inspections prior to the auction without knowing if they will be the successful bidder. Special conditions of sale and having no cooling off period also limit the number of potential buyers your property will attract. Where for instance buyers wanting to buy subject to financial approval cannot buy at an auctions that have an unconditional contract of sale.
- Auctions are stressful, unpredictable and risky. If bidding is slow on the day it can send a poor message about the value of your property. If you’re unlucky enough to work with an unskilled auctioneer who fails to encourage buyers to increase their bids, you’re at risk of underselling the property.
- You don’t always necessarily get the best sale price. Keep in mind the winning bidder only needs to slightly outbid their competitors. At auction you never can be certain whether the bidder got to the maximum offer they were willing to pay or just the lowest offer the bidding closed at. Some vendors also feel pressured to reduce their reserve price to sell the property and bait buyers at the open house.
If you’re still uncertain about which sales method to go with, the best thing to do is to sit down and discuss it with your agent. They will be able to make a good recommendation based on the market conditions and trends, what has worked for sellers in your area in the past, the type of property you’re selling and what timeframe you want to sell your home in.
Happy house hunting!
From the Homely team