Fuelled by media-hyped images of large crowds and frenzied bidding in suburban streets on a Saturday afternoon, the auction culture is changing in Australia.
Once viewed as a last resort for desperate or distressed sellers auction rates have increased in recent years and is now the preferred choice in some locations.
People may have the view that an auction is the way to go. However, most would be surprised to know that overall only a small percentage of sales are conducted by auction. The majority of people still sell their house via private treaty.
Property markets can vary substantially from one location to the next, with some locations and some houses more suited to auction than others.
Auction rates generally follow demand and so long as there is a strong pool of buyers, can be a very rewarding way to sell a house.
How do you know if your house is suitable for auction?
Let’s take a look at some of the ways competition and demand can be used to your advantage.
Hot or not
Whichever way you choose to sell your house, the goal is the same: achieve the highest price, with the least amount of hassle, in the shortest possible time.
For some properties choosing to sell via auction is favourable and will achieve this outcome. Arriving at that decision means analysing three market perspectives i.e. the buyer’s motivation to buy at auction, the seller’s motivation to sell at auction, and is the property suited to an auction.
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Buyer’s perspective
- Peoples’ appetite for different properties and locations is constantly fluctuating.
- Is there a current or emerging trend in favour generating demand for your house?
- At times there are lots of offerings and the market is dull.
- If buyers are interested but spoilt for choice, will an auction get them to act?
- Some preferred property types have a very limited supply.
- These include rare, unique, highly-customised or period houses that cannot be recreated.
- New developments are well-marketed and attract buyers to investigate a location and its surrounds.
- Is the property located in an emerging or re-emerging location?
- It’s a seller’s market.
- Due to short supply of a particular type of house in a particular location, there is high demand creating the competition needed for a successful auction result.
Seller’s perspective
- People may need to sell a house quickly because:
- Short-term financial challenges.
- Personal situation has changed e.g. divorce.
- Moving location or downsizing.
- Liquidate a deceased estate.
- Need money to fund retirement.
- Property listing is about to expire.
- Already purchased new house elsewhere.
- Vendors may prefer auctions as the most transparent way of determining fair market value.
- This is normally related to the property type (see Property Perspective below).
- There may be some immediate expenditure required on a house which a seller does not wish to commit to.
- A private treaty sale may be proving difficult and costly.
- There may be some deterrent or reason why the listing has gone stale.
- Changing to an auction strategy may provide the breakthrough needed to find a buyer and bring the sales process to a head.
Property’s perspective
- As mentioned previously, a property may have existing or escalating carry or maintenance costs the current owner does not wish to pay for.
- A vacant property may need a quick sale.
- Some properties have a narrow market and auction is the best way to get clarity on what they are worth to a very select group of buyers.
- These properties are highly-customised and unusual, or unique and rare.
- The location is highly-favoured and creating a lot of interest amongst prospective buyers.
- Some locations strongly favour auctions due to buyer competition.
- An auction can build the esteem of a property which builds demand.
- Presentation and condition of a property can go either way, attracting competition from two groups of buyers.
- People who want to buy the best and not have to spend any money when they move in.
- Renovators looking for a poorly-presented property if a great location.
- Properties that haven’t been upgraded for a while may have a lot of concealed features.
- Australians love period suburbs.
- Properties with period features and architecture have strong appeal amongst buyers.
- The charm and character of these properties can’t be replicated.
- Increased emotion and demand for these properties can create the competition needed to push prices higher at auction.
Evaluate
Not ‘everyone’ is a buyer. Properties that do well at auction appeal to the majority of a specific target market, thereby creating the concentrated competition needed to go to auction.
In particular, this is driven by the individual characteristics of the property itself. However, personal influence from the seller’s perspective can add to creating a target market as described above.
Auction day is full of people, excitement and emotion. Competition to outbid each other on the day can drive prices to the highest market value.
If your house is suited to an auction, then for the above reasons it could be the best way to achieve an outstanding result in the shortest time possible.
Related Reading: 'Play your cards right - what to ask a real estate agent'
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