Auction : Advantages & Disadvantages

ADVANTAGES & DISADVANTAGES OF AUCTION

> Advantages to the Vendor > Disadvantages to the Vendor > Agency Selection > Rules of Conduct (Vic) > Passing In - Auction Plan > Further Assistance

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The Auction Method is often referred to as the 'deadline' method of sale. A date and time are established and buyers or their legal representatives need to be at the auction at that time and openly bid in a competitive environment.
 
In Victoria the highest bidder to whom the property is 'knocked down' is deemed to be the purchaser. It is only when all buyers have signed the mandatory section 32 vendors statement and contract of sale (and all vendors have signed as well) that a legal binding contract has been entered into (section 126 of the Instruments Act).

1. A well run marketing campaign will maximise the number of buyers at that one moment in time.
2. The vendor can, within reason, dictate the terms of sale, ie settlement dates etc and bidders bid on those terms unless they have entered into private settlement arrangements beforehand. 
3. The sale is unconditional, ie not subject to finance and so forth. 
4. There is no cooling off period at an auction or 3 business days prior to and after the auction (Victoria).
5. Theoretically there is no upper limit/ceiling on price. 
6. A sense of urgency may be instilled in buyers.
7. The auction campaign (with residential homes usually about 4 weeks) allows the vendor to receive excellent feedback from a good estate agent.
8. More buyers may be attracted because a price range is usually quoted rather than an upper limit. A realistic range is ideal. Current Victorian State legislation makes it illegal for agents to deliberately underquote buyers. 

For buyers, most of the above information is reversed. Most benefits of auctions for vendors are disadvantages for buyers, eg. No cooling off or subject to finances and so forth. Some advantages to the buyer include that they can educate themselves very quickly by attending open houses and auctions and they can get a good 'feel' for prices, trends and activity on the marketplace.

One major advantage is that once the documentation is signed by all parties the buyer knows they have secured the property.  Purchasers of residential property can allow themselves to 'get carried away' with the excitement and competitiveness on the day and would be well advised to set a limit and not exceed it. If there is a danger of this, employ a professional buyers advocate (fees are usually involved) or have someone 'neutral' bid on your behalf.

Disadvantages may include the possible feeling of extra stress involved in an auction-marketing program and the thought of not achieving the reserve (base) price. The perception of an invasion of privacy, ie open houses, open forum, disclosure of price can be negative and of course fees. Commission are usually the same for private sale and auction but marketing expenses can be higher. This can often be justified by the achievement of a higher figure.

Agency Selection Checklist:

• Is the agent experienced in your area?
• Is the agent a good auctioneer?
• Is the agent a competent marketer of a property such as yours?
• Who will conduct the open houses?
• What feedback will you receive?
• Are they realistic (or optimistic) in their price range quoting?
• How do they intend to market your property?
• What costs are involved and when are these costs payable?
• What is their recent success rate for auctions?

Do not have a "friend" bid for you, dummy bidding is highly illegal and there are substantial fines and penalties. See Rules of Conduct (Vic).

When a property is passed in at auction the vendor can feel quite devastated. Always remember that this is
phase 2, phase 1 was sell before auction, phase 2 sell at auction, and now you are in phase 3, re-marketing the property.

Carefully review the reserve price. Your next 'advertisement' is the one that goes in the daily and local press stating the result ie PI (passed in), VB (vendor bid) for $________, Reserve $________. The new price is critical. If you want to sell quickly then be realistic. Liaise with your agent. Your exclusive contract with the agency may go for another 30 days (refer to your Authority).

Objectively review the advertising and marketing. Review price, photography, the copy itself as well as the media selection. The Internet and window displays can be changed virtually instantly and your agent can go straight back to all the enquirers and call or email/sms them the new price.

Be expected to contribute to the new campaign. Don't sit back and blame the agent or the auctioneer. Good agents will do their utmost to achieve a sale at the best possible price.

Positively review the process with your agent. As a last resort if things are not working out then you may have to consider changing agents. Before you do though, carefully check the written authority and ensure the exclusive period is over.

Licensed agent Geoff Buck specialises in vendor advocacy.

Geoff has had over 30 years experience as a licensed estate agent and auctioneer as well as being a highly regarded lecturer at the REIV, Swinburne RMIT, specialising in subjects such as auctioneering, selling, listing and methods of sale. He has authored and co-authored books of reference on these subjects.

Fees are by negotiation.