Selling at Auction?
4 things that can happen
and how Number 3 can be critical if you’re not prepared
One of the main reasons people are hesitant to sell their home by auction is the fear that their property will not sell and will pass in. For many of us, this can turn into an emotional roller coaster of nerves, uncertainty, excitement and feeling sick inside.
Understanding why properties pass in will help to increase the chance of success for you on auction day or immediately afterwards
There are different scenarios that, if informed and prepared, you will know what decisions to make and when you’ll need to make them
You need to know that if your property was for private sale, you would have attracted the same amount of buyers and they would have decided the same value they see in your property at this point of the campaign. An auction is a process that makes sure the buyers are fully qualified and ready by a certain date.
You would think there are two outcomes, you sell or you pass in. In actual fact there are 4 different things that can happen come auction day. If you are prepared, you will have a strategy worked out that will help you achieve the outcome you need.
Option 1
THERE ARE NO ACTIVE BIDS AND YOUR PROPERTY PASSES IN WITH A VENDOR BID
Vendor bids are normally placed 10% lower than the vendor’s reserve.
You would think this is the worst thing that could happen. However there is a strategy that could see this being the best thing that could happen.
In this instance any buyers that have shown interest leading up to the auction either were not there or were not in a position to bid under auction conditions.
When a property does not sell at auction it automatically transfers into a private sale. The buy now price is advertised and needs to be at a level that is realistic and will help to create competition if you are serious about selling. You have 3 days where auction conditions still apply following the date of your auction (which means the sale is unconditional) so your agent will schedule an open for inspection on the Sunday, Monday or whatever it takes to get buyers through. They need to work hard on negotiating with all buyers that have inspected your property and create new interest from the updated campaign. When these negotiations take place, the transparency is no longer there and buyers cannot see or know what other buyer’s offers are. This can sometimes result in larger than necessary increases in price. For this to happen though, there needs to be competition.
Option 2
BIDDING CAN FAIL TO REACH THE RESERVE PRICE AND WILL BE PASSED IN TO THE BUYER THAT HOLDS THE HIGHEST BID. THIS IS WHEN THE BIDDING FLATTENS OUT OR STOPS WELL BELOW WHERE IT NEEDS TO BE
In this instance the buyer that the auction is passed into has exclusive rights to negotiate until an agreement is made. You have control over this and your agent & auctioneer will work with you to get the buyer where they need to be. Otherwise the buyer may decide to walk away. If this happens, the agent is then able to open up negotiations with other buyers if any and work on getting a result. Sometimes passing in a property this way can actually be a strategy to achieve a higher price. At this point the reserve price can be adjusted to a higher level to allow negotiations to take place and pressure to be put on the buyers to get them to where they needed to be in the first place.
Option 3
THE BIDDING IS SLOWING DOWN JUST BELOW WHERE IT NEEDS TO BE TO REACH RESERVE. THE AGENT BREAKS AND COMES IN TO CONSULT WITH YOU
This tactic is used to discuss adjusting the reserve price at this point of the auction to declare the property ‘on the market’ in the hope it will create a spike in bidding. Some buyers will not even get involved at an auction until they know the property is ‘on the market’ which means reserve has been reached and the property will be sold to the highest bidder.
Having this break and how long it takes can have an impact on the momentum of the auction. It allows buyers time to think and can have a negative effect.
The risk here is, if you agree to declare the property on the market and there are no further bids the property is sold under the hammer and under what you originally wanted. There are no guarantees the bidding will continue after having this break.
I always prepare my clients for this scenario to reduce the risks. Setting the reserve at a level you are not prepared to accept anything below and communicating this with your agent & auctioneer is critically important for the success of the campaign. If your agent & auctioneer know how to handle this they will keep squeezing and manipulating the buyers or pass the property in to the highest bidder which turns it into Option 2 (you have control).
Option 4
THIS IS WHAT AN AUCTION IS ALL ABOUT… THE BIDDING IS STRONG, COMPETATIVE AND SELLS UNDER THE HAMMER
You have done everything right. Your property has been presented, promoted and priced right and there has been good inspection numbers throughout the campaign. You have allowed buyers to inspect when it suits them and get through to do building & pest inspections. You are well informed and have prepared for auction day. You have trust in your agent and auctioneer to get the job done.
The bidding is competitive and there is momentum. The bidding reaches your reserve price and exceeds your expectations.
Time to celebrate and know the process is over
CONGRATULATIONS!
When I work with my clients I always make sure they know what to expect come auction day from the detailed communication and buyer feedback. I work on preparing them for each and every scenario so there are no situations that can affect the outcome on the day.
Sometimes it can feel like you are playing the most important game of your life
You need someone in your corner that’s working for you and knows the rules
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If you’d like to know more book in a call today