Agents across the country have long debated the best method of sale – is it via Auction, or via Private Treaty? Which gets the best result for the vendor, the buyer, or the Agency? Sold Magazine asked some leading agents across the nation to give their opinion on what works best for them.
Rod White – Chief Operations Officer for Yong International - Auction
Every Auctioneer would have stories of properties selling far above both the vendors and the ‘experts’ opinion. Value, like beauty, is often very much in the eye of the beholder.
It is true that sometimes they do not reach the reserve and end up selling for less. But who can say that the final selling price was not the true price anyway? I have yet to have a valuer tell me that the price was too low.
In a changing market how can any agent confidently predict what will be the best selling price for any property? In a rising market, we often hear stories of buyers paying over the listed price. This happens when there are other parties interested in buying the same property. Imagine if it were a true Auction, what could be achieved!
If it’s a falling market putting the property on the market at too high a price (as most vendors want to do) can cause those vendors to eventually sell for a much lower price than they could have originally achieved, simply because the property value has fallen during the period it has been on the market.
By removing the price, it enables the buyer and seller to meet at an agreed price. Provided that both parties are not under undue pressure and both know the market conditions, then this should be the real value of the property.
Auctions also remove the habit of some agents to ‘Buy the listing’ in other words quote a higher likely selling price than what is a realistic price, simply to get the listing.
What about the marketing cost? This is a common complaint. In reality, the marketing program that is required to sell an Auction property should be no different to that of the marketing program required for any property. The only additional cost should be that of the Auctioneer.
I have witnessed an agent who decried Auctions as a sales method, actually conduct an Auction campaign. It was a total failure. He then used this example as proof that Auctions don’t work. There’s little doubt that the agents attitude would have been the main contributor to the failure of this Auction campaign.
Chris Gilmour – All Properties Group, QLD Private Treaty
I have been selling real estate now for three and a half years, and in my career I have only ever put two properties through an Auction campaign, and both times the properties were passed in.
People often ask me what is the best way to sell a property, some will say Auction produces the best and quickest sale for a vendor – well sometimes I find that hard to believe! I do believe Auction is the best method if you have a number of buyers wanting a property or in a booming market, but when the market tightens or enquiry is low I believe private treaty is the best outcome. My stats for selling properties stand at 91% list-to-sell, and with an average of 18 days on market, so for my vendors I believe this is the best method of sale.
In most cases during a marketing campaign I produce multiple offers, and I feel this way is better as each buyer doesn’t know what the other buyer is offering, and it drives prices through the roof and beyond my vendors expectations. At Auction the buyers compete against each other but can get away with only bidder $1 more to secure the property.
Agents say well you don’t know the Auction process or Auction will work in any area? This again I find hard to take. My area I’m up against one of the number one franchise groups in the area – and they Auction everything. The current clearance rate is 11% in surrounding suburbs, yet not one property in my area has sold under Auction conditions in over four years. I have an 86% market share in my area and all done by private treaty, most being sold in 18 days or less with multiple offers.
So the battle of Auction versus private treaty is always a heated battle, but with 150 properties sold last year by myself not one was Auction!
Simon Perri – Prudential Real Estate, Liverpool, NSW Auction
I will go with the view of encouraging Auctions in this current market climate, because I believe that the owner of the property invests a greater amount of money into the marketing through Auction than a sale via private treaty. This makes the owners more open to understanding the market conditions, and the reality of what a buyer is going to pay for there home. Sure, they will always want more, however, with high communication over a programmed time structure, most owners soon come to the realisation of what a buyer is willing to pay for the home.
Many times when people decide to sell, it is not uncommon that they have a very good offer on the table within the first two weeks of them commencing a sale via private treaty. This may also occur with an Auction campaign. However, more often than not, owners tend to want to wait to see if there is anything better, or further more ask the buyer is willing to pay more. With a sale via private treaty, buyers and seller then enter into a negotiation, which is really a one-on-one negotiation, and the agent needs to be very good in having the owner understand that the offered price is a very good offer.
However, there are times, that as a result, unless the buyer is willing to pay full price, or close to it the buyer withdraws from the negotiation, and further more the owner does sell for thousands of dollars less. Auction, on the other hand, allows the owner to advise all buyers in a respectful method that they wish to lead the property to Auction, before considering any offers that maybe tabled. The buyer clearly understands that anynegotiations that are to occur will have to occur on the Auction day.
As an agent, it also allows the sale of the property to be unconditional, immediately upon the fall of the hammer. This allows the seller to move on, and as an agent, if the buyer has any concerns it is addressed before the Auction; and sale is then completed. Settlement is the only other matter that needs to be addressed which typically is a smooth run. In a sale via private treaty, lengthy hours can be invested through a cooling off period, which can sometimes be worthless when the buyer decides to withdraw from the sale. Many hours can also be invested with a buyer that is interested in a property through Auction, however typically it is invested with more than one buyer providing more opportunities of a sale.
Sellers are often discouraged by Auction, as they believe that it is pressured method of sale in comparison to a sale via private treaty. However, one thing that sellers tend to forget is that they set a reserve for the sale of the property, and then buyers have to meet that reserve before the home is on the market. Furthermore, competitive bidding provides more opportunities to have the buyers exceed the reserve rather than negotiate backwards with a set asking price through a sale via private treaty acting like a ceiling, to the potential price that the property may achieve.
Even in a soft market, buyers will still tend to buy on emotions rather than facts. Unless they are investors, it is not uncommon that buyers will be willing to compete to buy the home, as they not only want to win on the day.
Milton Rendell – Principal, Real Estate Plus, Perth WA Private Treaty
To Auction or not to Auction? That has been the question for the twenty-four years I have been in real estate I have heard the debate over and over again. In Western Australia, we have had the wise men come over from the east and tell us that we are doing it wrong time and time again, and that Auction is the best way to go.
I am personally not against them at all and have held a number over the years some with success and others – well not so. For me, the market conditions seem to be the driver on to whether I would consider one for a client or not. In rising markets and to limit competition in getting a listing, I can see the logic and I have secured listings using Auction as a strategy.
Western Australia still has had a pretty strong private treaty mentality and that has not changed a lot. The areas in which our offices are located – prices can still be lower than $300,000 and some are blue collar areas – so the cost and strategy of Auction is not that attractive to owners and success rate poor.
A basic three bedroom home is simply that, and the prices do not vary a great deal.We have been running structured marketing plans for a long time, with private treaty and that has worked effectively, we use either ranges for pricing or fixed price as our major two basic marketing tools with respect to price. We have used firm pricing in recent times, which I understand is used effectively in places like Scotland. In Western Australia, we are still achieving good commission splits around the three percent and my offices have been getting vendor contributions for nearly twenty years.
One of the driving forces in the early days is that you were assured advertising money when conducting an Auction; now really that benefit no longer exists. Auctions I see now with price guides and forms of ranging so my way of thinking the Auction process maybe starting to more resemble private treaty, which no doubt many won’t agree with me on the east coast! The real focus should always be on the seller and selecting the method of sale in the given the market and area that will achieve the best result for their market. Booms are great for Auctions – today we have no boom so our focus will probably stay with private treaty it works for our market and that is what matters for our client’s end result.
Frank Gardner, Ray White Gold Coast, QLD Auction
I have been in the industry for five years with Ray White on the Gold Coast. I was taught from the word go the importance of Auction as opposed to private treaty.
In all markets, but in particular a volatile market, Auction is the only method for achieving that wonderful result “best price” and “sold!”
Marketing as private treaty can sometimes upset the buyers; as if the price is wrong they won’t come and look, or they may make offers totally unacceptable to the vendor. The market is price driven, and as such the buyers can dictate price. In a slower market when you take away the price with Auction conditions this does tend to excite buyers more.
Private treaty will work well if the property is price positioned; if not then the Auction method will almost certainly find a suitable buyer at a correct market price. Buyers will come out with anticipation of purchasing a property at the true market value or less, but not more. Therefore the buyers and what the buyers will pay dictate the market. With Private treaty however, the buyers may come in with lower offers based on comparables and instinct. This can deflate the price and slow down the campaign moving the property days on the market out and eventually devaluing the property.
Clearance levels are quite often higher for Auction and days on the market usually less. The Auction is the only real way of attaining the best price in any market buoyant or in decline. In a buoyant market private treaty will eventually sell, but Auction will sell much quicker because there is meaningful purpose and urgency to sell in that four-week window of opportunity.
Today my business is highly successful in good or bad markets and I am selling 83% of all my stock/property by public Auction. I do not believe the same success levels could be obtained and achieved with private treaty sales.
Hugh Bateman – the Property Shop, Mudgee NSW It depends.
It is evident that the most experienced real estate Auctioneers have had an introduction and grounding in Auction skills in parts of regional Australia.This is evident by the sheer nature of intense selling which gives an Auctioneer a greater insight into buyer signals and general body language in a volume based environment and also the repetitious number calling for experience.
From an Auction success point of view,it is so much better received when buyers are entering or exiting the market place more consistently than the other preferred mode of sale, private treaty.
Properties that fail to sell at Auction are usually those that are harder to value or those that are unique with a lower percentage of buyers.In support of that, every property’s marketing should be done off the back of its merits.Not all properties should therefore be sold by Auction, nor should all properties be sold by private treaty.In other words, the merits of the property should determine the sale process.
In addition, when the decision is made to take a property to Auction not all properties should be sold on site and not all properties should be sold in Auction rooms.A highly professional agent should be able to guide any vendor in respect of the best mode of sale for that individual property, and rather not for the agent’s benefit of marketing or unsubstantiated value assessment.
Agents or particularly principal’s that decide to Auction without experience do this at the detriment of the vendors and their own business.Professional Auctioneers that are regularly conducting Auctions are providing a sound industry professional service and their businesses are doing well.
Loose Government legislation has allowed new players to enter the industry without any genuine experience and to operate at the peril of their vendors.Recent television reality shows have certainly displayed some inadequacy in the practice. This does not do the real estate or Auction industry any good, and State Real Estate Institutes should be encouraging their respective government departments to reconsider a more appropriate training and licensing system for Auctioneers.
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