While in general, auctions, including online auctions, have for some time been an accepted way of marketing and selling residential property to an ever-growing audience, there are still a number of misconceptions that exist, which have prevented home buyers from embracing what is an attractive and highly beneficial sales channel, says Tania Smit, head of Pam Golding Auctions, which is powered by BidX1.
“Unfortunately, over the years, some myths have become entrenched with both buyers and sellers, overshadowing for some the key benefits of this highly effective and simple method of selling a property quickly. These myths also seem to be particularly prevalent in the higher-priced or luxury property categories.
“Encouragingly, however, market evidence indicates that buyers are hungry for further knowledge about property auctions, as they increasingly empower themselves to make more informed real estate choices. This applies especially to the advent of convenient, fully on-line live auctions, where buyers can bid for home and watch the excitement of the bidding process unfold without having to be physically present in the traditional auction room.
Myth # 1: Selling a property on auction is a desperate last resort
Smit says contrary to some perceptions, auctions are not only for financially distressed sellers or homeowners who fail to sell their homes via traditional estate agencies. As auctions are a highly effective way of reaching a number of highly willing, qualified buyers, they are increasingly becoming a legitimate choice for many homeowners due to the unique benefits of this sales strategy. The process is relatively quick in comparison to traditional private treaty listings, as a set auction date usually results in a sale within the three-to four-week catalog period. Although not a prerequisite, buyers often purchase with cash, with the added benefit that interested buyers could potentially bid the price up by significant amounts, sometimes even past the anticipated market value.
Myth # 2: There must be something wrong with the property
“As mentioned above, many properties are not distressed sales, but well maintained, quality homes sold in this way in order to reach a number of qualified buyers and achieve a faster sale. Some of these properties, including homes in high-demand areas or luxury homes, are so sought after that they may well achieve prices beyond expectation. Furthermore, some high-end homes are so uniquely exclusive that this is in fact the best possible way of marketing and selling to a targeted audience in order to maximize the return to the seller.”
Myth # 3: You are buying the property under pressure without having viewed it
When you are interested in a particular property, you will be invited to view the property privately with an agent or otherwise on a normal show day, as is usually the case with properties sold via private treaty. During this viewing, you have the opportunity to ask any questions regarding the property. All the relevant information will be made available to you before the auction, with no obligation to bid should you decide not to go ahead.
Myth # 4: Sellers have to sell on the day, regardless of the best bid
As is the case with any marketing strategy that is developed on behalf of a seller/homeowner, the role of price is critical in ensuring a satisfactory result for all parties, says Smit. An auction broker will therefore guide sellers through the process ahead of time to set realistic, market-related, reserve prices on their properties, with a view to also setting an opening bid strategy to entice buyers to bid ‘on the day’, thereby creating a platform of competition and allowing the market value to prevail in the form of the winning bid. Naturally, there will be instances where either there are not a sufficient number of buyers registered to create an energised event, or the final bid ends up below the agreed reserve price (which is typically not disclosed to bidders).
Adds Smit: “In any event, it is customary to make the bidding ‘subject to confirmation’ (STC), meaning that the seller has the right to accept or reject the winning bid, thereby mitigating the risk of selling below expected value. It is interesting to note that the auction day itself is only one moment of ‘sales opportunity’ in the auction process, as offers will often also be considered before or after the auction. This market response allows the brokers to manage the price before auction, thereby optimising the opportunity for the seller during the catalogue period.
Myth # 5: Auctions are complicated and intimidating physical events
“If you’ve never participated in a property auction, there is naturally a fear of the ‘unknown’ and the process may seem complicated and daunting. While the traditional model required bidders to be physically present, and then having to participate in the ‘rough and tumble’ of competitive bidding run by an auctioneer, more and more property auctions are now moving into the online space, where the entire event is being run online without the need for a room or even an auctioneer. This alleviates the somewhat intimidating environment and, indeed, the pressure of a fast-paced ‘pushy’ auctioneer, but retains the energy and excitement of experiencing live competitive bidding and the thrill of having the winning bid. The online approach is fast gaining momentum because of its convenience and simplicity, as it allows buyers to bid from the comfort and convenience of their own environment, on any device of their choice, in a process that is geared towards transparency and simplicity. All legal documents are also available upfront, allowing bidders to prepare themselves well in advance, with the added support of a team of willing and professional specialists to guide them through the process.”
Myth # 6: You have to pay in cash at the auction
While some property auctions may require a cash purchase, this is not the case across the board. As luxury properties often change hands for very high amounts, it would be unreasonable to expect buyers to be able to hand over cash immediately. Instead, as is the case with traditional home purchases, they can arrange financing prior to bidding and in so doing, finance their acquisition via a pre-approved mortgage. This will ensure that if you are successful in your bid, there won’t be any unnecessary delays in conclusion of the transaction.
Myth # 7: Property auctions compete with traditional estate agencies
Says Smit: “Not all properties are suited to the auction strategy and channel. Certainly, a property auction is best suited to those sellers who are seeking a faster result than what is stereotypically achieved in private treaty. There are also instances where properties grow ‘stale’, having sat on the market for an extended period and therefore require a fresh approach and new momentum in the market. An auction can certainly provide this in the form of renewed marketing, more competitive pricing, as well as the urgency of a specified date of sale.
Myth # 8: Only those experienced in bidding on auction can really compete successfully for properties
“Auctions are open to the public and anyone can bid on a real estate auction as long as they have registered to bid, and are able to comply with the payment requirements. People who buy property on auction are from all walks of life and across all areas and price bands, and the fully online process is easy to use and follow, with support provided at all times.”