When to sell by Auction

Not every market, property or reason for selling is suited to auction. But when it is and when it works, it’s magic!

If you live in Melbourne Australia or ever visited the city of love, you’ll know Melburnians have more than a passing interest in real estate and the process of selling and buying real estate at auction.

If the market is hot in greater Melbourne and you’re looking sell, it’s not so much about choosing a method of sale, but which day and time you should auction.

Long established as the property auction capital of the world, the Melbourne real estate industry has perfected the art of auction marketing, achieving a unique blend of amazing results for sellers and unparalleled transparency for buyers.

But why does it work so well? What are the key reasons for success and what should you expect when you decide to go to auction?

Here’s a look inside the auction system and my take on why it continues to be the preferred method of sale in most popular Australian and NZ markets.

The psychology of buying real estate

As a real estate agent, I can tell you selling a property is a two-stage process; Finding a buyer and negotiating a sale.

I know that might sound obvious but I believe many property sellers fail to understand these steps and lose out.

The best agents focus exclusively on the finding a buyer part or marketing because they know that nothing will happen unless they get this right. In fact, in an action scenario, finding multiple buyers is essential to the process.

So let’s dig deeper into that for a sec. 

Finding a buyer means fielding the initial buyer enquiry, arranging for that buyer to see the property, managing the buyer’s expectations, answering questions and qualifying their interest. (“Would you like me to keep you informed about this home?”)

We all understand the value, importance and significance of a ‘home’ in our lives. 

Our homes are a kind of an emotional headquarters from where we run our lives, raise and nurture our children, deal with a crisis or setback, indulge our passions and celebrate our victories.

Personally, I find it hard to beat a special dinner with good friends, family or my children at home on a Sunday night. I have moved ten times in the last ten years but wherever I am, my home is my castle.

And this is where the beating heart of a buyer’s emotional leaning comes into play.

Typically, when I’ve taken a buyer through a private appointment or met them at an open house, I will ask this question: “Put price aside for a moment… can you see yourself living here?”

It’s a great question because it lets me quickly and effectively establish if I have serious and genuine interest. Sooner or later I’ll be updating my client, the seller on buyer interest so knowing who’s in and who’s out is paramount.

When the buyer says “Yes” I know I have something they want and it’s my job to make sure they have every opportunity to get it.

Once a buyer decides they’re interested, they’ll be subconsciously working towards how they can become the next owner and this is what I call MMI or Mentally Moved In.

Again, we’ve all done this. We see ourselves watching a movie on the living room or playing with our kids in the garden. It’s a real live ‘what if?’ situation and when it comes to real estate marketing, THAT’S where the magic happens.

And these emotions run deep and strong.

On hundreds of occasions I have seen losing bidders on auction day with tears in their eyes. 

So if that’s the phycology behind buying real estate, what has to happen to achieve that first vital step and have the buyer see inside your property?

Buyers shop on price

I’ve done it. You’ve done it. We’ve all done it. Everyone understands that time is our most precious resource, so why waste it looking at property out of our price range?

If a property is ‘tagged’ at a price above our limit, why look at it?

The word "auction" is derived from the Latin augeō which means "I increase"

In other words the very nature of an auction is to start at a base price and work up.  However, many sellers ignore this essential marketing strategy and actually instruct their agent to quote the property price at the amount they are hoping to achieve. HUGE mistake!

Let me explain this better by giving a common example. This is the industry insiders view of what actually happens. 

Let’s say you own a property that is realistically worth $750,000 and you’ve bought another property so you HAVE to sell

If you’re like me and 95% of property owners, you’ll be hoping to get $800,000 or more. Nothing wrong with that and it might happen but you need a contract and if that’s anywhere near $750,000 then so be it.

But put your buyer’s hat on for a moment. You’ll be looking to pay say $700,000 or a bit more if you have to.

My experience tells me that buyers will spend their absolute limit to buy the very BEST home they can afford and most of the time, a buyer who spends $800,000 will start out looking around $700,000

And let’s remember that the enemy when you’re selling is other property for sale.

We live in the information age and buyers can quickly find out what other properties are priced at in their area. They can also see actual selling prices and may have already been the losing bidder at one or more auctions.

A successful auction needs competition from multiple buyers and that’s not going to happen if the agent quotes your $750,000 property at $800,000 which is why your quote should be ‘$700,000 plus’

Choosing your reserve price

The reserve price is simply the price (or higher) you agree to sell at. 

When I’m selling by auction, which I’ve done quite a few times, I don’t want to choose my reserve price until a few days before I auction and sometimes I might even wait until the day.

I rely heavily on feedback from my agent and I’m looking to choose a figure that is close to my bottom price but will still encourage bidding.

What happens when bidding reaches the reserve?

The magic is what happens if everything goes well.

When bidding reaches the seller’s reserve price, the auctioneer will inform the crowd that the seller is going to sell the property if there is no further bidding.

This message to buyers tells them that the property is going to be sold so if they want to buy they need to bid.

In most situations, if the reserve is not reached, the highest bidder will have the first opportunity to negotiate with the seller. When this happens you say the property has been ‘passed in.’

So look at the features of the auction system.

• A ‘base price plus’ attracts potential buyers to inspect the property, consider if it’s right for them then do their pre-purchase due diligence (including price research) prior to auction day
• A purchaser at auction buys the property unconditionally. This means there are no conditions like finance or a structural building inspection as you can’t have an auction with conditions so the seller gets a firm contract.
• The auction date place and time delivers a firm ultimatum to buyers.

If you’re looking to sell by auction, my best advice is to connect with a great local agent who can take you through the process and explain the pros and cons.