Should I put my property under auction?
We list the pros and cons to help you decide
Sale by auction is one of the most popular ways of selling a house. In the last month alone in Sydney (as of 19 March 2022) there were 867 auctions scheduled and 433 sold, with the median price being $1,601,000.
Many people are attracted to auctions because of the perception that they bring in more money for the seller, but that’s not always the case. A large percentage of auction sales are also passed in, meaning that the property didn’t reach the vendor’s reserve price (more on that below). In the last month in Sydney, 94 properties on auction were passed in, which represents over 10% of properties auctioned.
Auctions can have a high success rate, can sell in fewer days, and result in less time in negotiations for both vendor and the agent. But they are not always the best way to sell your property. To help you decide whether an auction is right for you, we have listed the pros and cons of putting your property up for auction below.
How are auctions conducted?
Here’s a basic outline of how auctions are conducted in Sydney.
- The property is advertised with details of the auction date, time, and place. The place of the auction is usually at the property’s address.
- An interested buyer may put a bid forward before the auction date, which the vendor may accept if the price is right.
- On the day of the auction, an auctioneer conducts the process and accepts bids from interested buyers. The buyer who bids the highest wins the right to purchase the property, provided the highest bid is over the reserve price (the lowest price the vendor is prepared to sell the property for).
- If the highest bid is lower than the reserve price, the vendor may enter into further negotiations with the highest bidder.
Pros
1. High emotions
High emotions, pressure, and competition among buyers can lead to increased sale value. You can capitalise on the natural high people get when in competition with one another, to increase the value of your property.
2. The sky’s the limit
There is no limit to how high the price on your property can go. Auction sales are therefore best for properties that are naturally in demand such as those close to popular amenities and attractions, or unusual properties with unique selling features found nowhere else, and that is difficult to price.
3. Limited time for selling
Auctions have a set time for selling, so this is great for vendors who need to sell a property quickly. Also, the limited period means there are not as many inspection times and open home periods that can inconvenience the vendor.
The limited-time period can also encourage serious buyers to act quickly. This will also help you identify the serious buyers if a sale doesn’t occur (such as when the reserve price isn’t met) and enter into further negotiations.
4. Auction sales are unconditional
Auction contracts are unconditional which means that once a sale is achieved (either before the auction date or at the time of the auction) the contract is final and there is nothing to stop the sale from going ahead such as finance or inspection issues. But this can also be a disadvantage – see below.
Cons
1. No Guarantees
There are no guarantees with auctions. Therefore, you might not achieve your reserve price.
As stated above, auction contracts are unconditional. This can also be a disadvantage as it can be too risky for some buyers and may turn them off.
2. Reliant on market conditions
Auctions are heavily reliant on market conditions. Because there is a set period to sell your property, you have to get the timing right. If the market is lukewarm you may likely not get the kind of interest you want, than when the market is hot and many buyers are competing for properties. It is very hard to time the market and you never know what kind of interest your sale will generate.
3. It can devalue your home
If you don’t reach your reserve price, buyers will know what their competitors are prepared to pay for the property and may likely not increase their offer.
Also, you will never know the true value of your home because all a buyer needs to win the auction is to bid just marginally higher than the closest competitor, and this price may not be the highest price they’re willing to pay.
4. High marketing costs
Due to the limited amount of time the property spends on the market, marketing needs to be amped up to give the property as much exposure as possible and drum up as much interest as possible with potential buyers.
5. It’s a gamble
As stated above, it is very reliant on market conditions. If you set your reserve price too low you won’t achieve the potential value your property is worth. But if you set the reserve price too high you may not sell your home.
Should you put your home on auction?
When deciding to put your home on auction, think carefully about the pros and cons and weigh them against the goals you’re trying to reach with your property. We recommend doing a lot of research, particularly on what’s happening in the market and how much properties identical to yours are selling for. Pay particular attention to:
- How much time you have available to sell your property
- Any unique selling points your property has that no other property in the area has
- Any special amenities that might be close by, that may be attractive to potential buyers
- Your risk tolerance
We also recommend attending some auctions and observing what happens and getting a feel for buyer appetite in your local area. This would give you an idea of how certain properties are valued by buyers in the market and give you confidence in the auction process should you go down this road.
It’s also a good idea to talk to agents and get their opinion on your property and how it might perform in the market. Different agents have different areas of expertise. At RPN Global Sales, we give you our expert opinion gained from decades of experience in the real estate industry and the local area, and we are only too happy to answer any questions you might have. Call us on 0450 914 535 for a chat.
