Auctions increasingly used to end housing 'Mexican standoff'
24th Nov 08, 4:18pm
Auctions are becoming much more prominent in the current uncertain housing market, being used more widely as a way to end the 'Mexican standoff' in the market between bargain hunting buyers and stubborn sellers and giving a clearer picture of where real prices are sitting. Clearance rates are also rising for auctions rather than the traditional 'sole agency' process, say Auckland real estate agents. "If the behind the scenes work is done well by the agents, for example if all potential buyers are found before the auction and are present at the auction, then auctions are the ultimate way of finding market value," Scott Cordes from Bayleys Real Estate said. Auckland real estate agents Barfoot & Thompson held their largest auction of the year on Wednesday, November 19, advertising 60 houses to be put up for sale. Interest.co.nz attended the day-long event to see how it went and to get a further understanding of what is happening in New Zealand's housing market at the beginning of summer. Barfoot & Thompson's Auction Manager Tim Carter told interest.co.nz that there has been a general move toward people using auction to get a result, with the transparent nature of auctions proving helpful in the current market. "Buyers can see other buyers and there is a security blanket at both ends. Buyers can bid more strongly (if they wish to purchase) and vendors are able to reduce the reserve in order to get a sale if they wish to do so," Carter said. He said that in the three months to November 20, Barfoot's clearance rate from auctions was 55.6%. This was compared to a rate of 28.6% through sole agencies. "Auction (clearance rates) are nearly double," Carter said. "People like the fact of auctions and there is a general move toward people using them." The day-long event, from 11am to 5:30pm, was divided into two halves beginning at 11am and 1:30pm. Early attendance at each half was extremely strong, with attendees having to watch proceedings in the foyer area of Barfoot's Kitchener Street headquarters on closed circuit television. Of the 60 houses advertised, two sold prior to the auction and one was withdrawn. Out of the 57 houses remaining, 12 were sold during the auction, 20 were passed in because the seller's reserve was not met by bidders, and 25 received no bids at all. However, as of two days after the auction, another 12 of the advertised houses that had initially been passed on had sold following negotiations between vendors and interested buyers at the auction. Carter said that this highlighted the forum nature of auctions in the sale process. The auction often leads to negotiations between buyers and sellers after the bidding has ended. "It's not all lost if a house doesn't sell on the day." The early action of the 11:00 auction mirrored the attendance, with four of the first five houses being sold under the hammer. However, sales halted after that, with bids being made on eight of the remaining 16 houses offered. The other eight received no bids, despite the auctioneer making suggestions on starting prices for many of them. Those using the auction as a way of feeling out the market were able to record what prices were offered for houses by interested buyers, as well as noting the tentative attempts by auctioneers to get bidding going. If reserves were not met and a house was passed on, then buyers were able to get a general sense of what others were prepared to offer. Sellers were able to get a sense of how high buyers were prepared to go. This then gave the agents the central role of bringing the two together. For the houses that sold, there was often frantic to-and-fro action by Barfoots sales-people between vendors on the phones and bidders on the floor as they tried to get the two to meet at a midpoint, above the initial public offer of the bidder but below the initial reserve set by the vendor. If an agreement was not met, then the highest bidder had the first right to buy at the reserve price if they wished. For 12 houses, continued negotiations after bidding had ended paid off. Of the first four houses sold, two of them sold for less than capital valuations (CV's). One Grafton house that sold for NZ$1.88 million had a CV of NZ$2.62 million. One house that sold for more than its valuation went for NZ$621,000, considerably higher than its CV of NZ$510,000. All four houses sold for at least NZ$517,000. The second half of the auction beginning at 1:30 offered 37 houses, of which eight were sold, the lowest being NZ$410,000. Despite attendance again being high for the beginning of the 1:30 event, the first sale was not until the eleventh house came up for auction. Between the eleventh and twenty-fifth houses, eight were sold, with one selling for more than its capital valuation. During the 1:30 event, eleven houses were passed in because reserve prices were not met, and 17 did not receive any bids at all from buyers. Four people remained in the auction room as the fifth-to-last house was offered, which thinned out to this corespondent and one other observer for the final three.