PASSED IN. How failing to sell at auction can cost you money.
Adapted from an article written by Peter O’Malley, author of Inside Real Estate.
When it comes to selling your property, we understand the disappointment that arises when a buyer’s price indication does meet your expectation. Failing to achieve your anticipated price point can happen in one of two ways; private failure or public failure.
Private failure occurs after your agent submits the buyer’s price interest/offers on your property, and you decline the offers because they’re below your expectations. You now have two options; continue to look for another buyer or withdraw your property from the market. Whichever option you choose, the reassuring outtake is that your business remains your business. The detail of the failed price offer should stay out of the public domain.
However, if this scenario was to play out in a public auction, not only would you be dealing with the disappointment of a failed campaign, but more than likely, you would have damaged the value of your property. It becomes public knowledge that you tried to sell at auction and failed. The price you declined will now be published in many media outlets. Giving away a critical bit of information.
When faced with these two scenarios, private or public failure, most agree that failing to sell at an auction has the least favourable outcome for the seller. What can also be overlooked is the wasted money that was paid upfront for advertising costs and auctioneer fees in anticipation that the expected auction would succeed.
Where does the auction stop?
This is an intelligent question to ask yourself in a cooling market. How do you have an auction with one buyer? The answer is you can’t. Another critical scenario people fail to consider is what happens when a cashed-up, emotional buyer and a bargain hunter are the only two bidders at auction? The result is that the emotional buyer stops just one bid above the bargain hunter’s last offer. Given that the bargain hunter’s bid is likely to be well below the seller’s reserve price, the property will be passed in, and the auction will stop. The result – a failed auction.
What’s more damaging is the emotional buyer has now discovered that they were about to pay more for the property than anyone else in the open market was prepared to pay. Imagine if the emotional buyer was prepared to pay $50,000 more than the bargain hunter; the seller will have unwittingly just lost $49,000! Unfortunately, this is the reality of public auctions. A successful auction requires multiple unconditional bidders prepared to pay more than the seller’s reserve. The belief that ten bidders will turn up to bid at every auction is more fiction than fact.
Let’s say the seller decides to hang in there and the seller agrees to reduce their reserve.
The emotional buyer cannot believe their luck! The reserve price has been lowered below what they were prepared to pay for the home – as a result, it’s sold!
The agent then tells you about the fantastic result and how lucky you were to sell on the day in “this climate”. Only the emotional buyer knows that public failure of the auction drove down the final selling price. The vendor will never know, and the agent just does not want to know.
Market Conditions
In a buoyant environment where multiple emotional buyers are turning up at an auction, the risk of public failure is far less. The question of whether you sell for the highest or the high price then comes into play.
In the current climate, finding one good buyer for your property can be an achievement, so it begs the question, why choose a strategy that requires at least two good buyers?
If public auctions continue to flounder, sellers are undoubtedly putting the sale of their major assets through the riskiest sale process available. Their advertising money is at risk, the highest bidder’s confidence in the property is at stake, achieving the best price is at stake, and the public deadline (that was meant to pressure the dozens of buyers) now hangs over the sellers, pressuring the one party it wasn’t meant too.
If you are considering selling your property, get in touch with the team at Iron Bridge today. Our team are on hand to offer honest advice backed up by a wealth of experience. Our unique Sell Smart Strategy ensures you receive the best service and a superb result when you sell with Iron Bridge.
