When selling a property choosing the correct method of sale is crucial to a successful outcome. There are many different methods that can be used. Auction, private sale, tender and expressions of interest are the most popular amongst selling agents in Victoria.
The state of the market, the property’s location and attributes, likely level of demand for the property are some of the factors that need to be considered when deciding what method of sale is best for a particular property.
Here in Victoria and especially in Melbourne selling agents recommend the auction method in the greater majority of sales. On many occasions this is more out of self-interest than what is best for the vendor.
Why do real estate agents love auctions? Firstly, it is an easy way to condition their vendor clients down in price expectation. When a property is auctioned and fails to sell it gives their vendor instant negative feedback. This makes the selling agent’s job easier.
Secondly, public auctions give selling agents an opportunity to attract other potential vendors. Auctions are essentially street theatrics that attract an audience; neighbours, general property observers and occasionally motivated buyers.
On too many occasions properties don’t sell at auction, this exposes the vendor’s weak position. It gives the buyer the upper hand in the negotiation.
Also, when a property is sold under the hammer the winning bidder only pays a small increment more than the under bidder. In many situations the winning bidder has a lot more financial capacity.
I estimate that around 60% to 70% of properties that are listed for sale in Melbourne use the auction method. However only about 20% to 30% of properties should be auctioned.
Melbourne and Sydney lead the world in the volume of property auctions. Nowhere in the world are property auctions so highly used as a method of sale!
Real estate agents are good at spinning a narrative to their vendor client that says there will be multiple bidders fighting over their property on auction day. This happens much less than their representations indicate.
For the auction method to work effectively it requires at least two highly motivated buyers with the financial capacity to bid at or above the current market price of the property. Auction buyers must also be in a position to sign an unconditional contract.
Some properties are suited to the auction method, properties in blue chip locations with scarce and unique features that are auctioned in buoyant markets. However, the greater majority of properties up for sale don’t have these attributes.
Before choosing a method of sale, vendors should discuss with their selling agent the many variables that will play a major role in determining the final selling price. The wrong approach will result in the vendor being short changed!
