Auctions are getting out of control in Auckland

Alistair Helm

The latest data from the May property market as reported by Reinz states that of all sales in Auckland; 38% “went under the hammer” – up from 28% a year ago, outside of Auckland auctions are also on the rise albeit off a smaller base up from 7% of all sales a year ago to 9% in May.

The comments within the real estate industry as expressed by Harcourts Northern regional manager support these rises saying “Sellers are wising up on the benefits of auctions – higher prices with less fuss”! She went on to say “sales by auctions had shorter and more thorough marketing campaigns that limited ‘stress periods’ for vendors

Sounds perfect – less stress, less fuss, higher prices!

The fact is, not only are auctions becoming more the norm, they are also being compressed into a shorter marketing period, which in my view is dumb and somewhat illogical.

Take the data for today (13th June) – in Auckland 185 new properties came onto the market. A pretty normal day, although Thursday’s tend to be busier (a hangover from the days when this is when the property magazines used to publish the weekly selection). Of these 185 properties; 98 (53%) were auctions, with 28% being marketed with a price and the balance for sale ‘By Negotiation’.

More than half of all new listings today are being marketed by the auction method of sale.

However when analysing the auction date for all of the 98 auctions, what I found even more alarming is that nearly two thirds of those new auction listings have an auction date of 3 week or less from today. A staggering 1 in 12 have an auction date before the end of June, with one providing only 9 working days between listing and auction.



Making the process of selling your house a rushed and truncated process is sure to do one thing – spook buyers.

Buyers who are already pulling their hair out trying to bid on houses with so little time to do undertake due diligence. As to the claim made by Harcourts Northern regional manager of ‘higher prices’. This is a claim that can never be truly substantiated, there is never a ‘control’ benchmark for houses; they are all unique in form, location and circumstances; measuring against CV is misleading as that is proven to be a poor benchmark.

So real estate agents who are paid a commission by sellers and who have the sole interests of sellers at heart, are constantly pushing auctions. Nowadays as the supply constraints grow larger these agents are choosing to recommend shortening the selling period. In my view this can only drive more potential bidders / buyers from the market, rather than as they hope, bring more buyers together to bid up the price.

Just imagine this scenario played out by an Auckland couple who are in the market ready to buy.

This young couple have been looking at buying a house for over 6 months, they constantly hear tales of super-heated property market and having already lost out on an auction or two already, stress levels are high! They get an email alert today for a property which meets their criteria. They review and decide to view at the weekend, they can’t do Saturday as they are away, so they attend on Sunday. They like the property a lot, but the auction is on the 3rd July, just 13 working days away. Now normally they would go back to view again the property on the second weekend before deciding if they are keen, but they realize the urgency. So they talk to their bank next Tuesday who show support for the price they think they can bid to, however the bank tells they will need a registered valuation.

The couple pause – they don’t want to spend another $600 for a valuation – after all they have only seen the property for 12 minutes so far!

They decide to wait until a second viewing at the weekend which goes well; so on Monday 24th June they decide to get a valuation. The valuer though says he cannot fit them in until Friday the 28th (just 3 working days from the auction). The next question is should they do a building inspection? – left with just 6 working days they decide to forgoe this, although they do request a LIM through their lawyer.

Days go by and the weekend of the 29th / 30th lets them see the property a third time, but with no real idea of the condition or what the valuer says he will value it at. By Monday pulling their hair out and loosing sleep, the valuer delivers the valuation placing the property at a value just below the level they had hoped based on their loan to value ratio. However all is not lost. One of the parents has said that if they needed they would lend them $30,000 to help if they needed it. They call up on Monday night to literally plead for help, however the access to the money is not available due to the money being on a term deposit. Whilst they could have bid at the auction and as they find out later with that $30,000 they would have been able to buy the property; they just gave up - totally frustrated on Wednesday night, instead of celebrating their new home, they drown their sorrows, vowing to give up on buying a house - they have a guts full!

(Note this is a scenario of a couple who are renting and don’t have a place to sell, just imagine the compounding issues if they had that property to sell, scraping together the cash deposit and then the panic about selling their own house).

So another prospective buyer fails to present themselves to the seller, unbeknownst to the agent. How many buyers are being squeezed out of the market by such circumstances? Equally how many buyers are buying without due diligence? This could be a dangerous long-term issue especially if there tuen out to be structural issues with the house.

Agents may well like short notice auctions. They may well get a sale and thereby service the vendor in a shorter period (this is clearly their idea of reducing 'stress') it certainly meets their needs as they get paid sooner with less work. Let's not forget that an auction requires less work by the selling agent around the process of facilitation and negotiation, the auctioneer actually does the negotiation at the auction.

Finally what about that claim about auctions provide 'more thorough marketing campaigns'? Auction marketing is no different to any other form of property marketing, except for the date of sale and the word ‘auction’ in the marketing material and of course the cost of the auctioneer. Properties all get loaded onto Trade Me and in the same way and promoted online the same way regardless of the chosen form of sale. Arguably and perversely the shorter auction period is further reducing the relevancy of print advertising, as lead-times for print are measured in days rather than the seconds it takes to get a property online.

Auctions are undoubtedly the favoured method of sale by agents, this they detail to vendors citing the data of 38% of all Auckland sales being by auction, but beware of these number as sometimes what is reported as an auction was not a true auction sale. However the vendors should be more wary; they actually end up undertaking a sub-optimal marketing of their property by going for an auction or worse a short notice auction. They may actually end up eliminating buyers and thereby reduce demand for their house.

The underlying problem is that this situation in today's market not become transparent as due tot he current demand as long as they get just 2 bidders at the auction the property may well sell; but the question has to be asked, was money left on the table?

In my view marketing a property needs to be focused process undertaken with consideration. It should be undertaken with an appropriate period of time. Sufficient enough to allow prospective buyers to satisfy themselves of the property, undertake due diligence and approach the sale in a clear-headed manner. That period is probably between three and four weeks. I think a fixed date of sale is appropriate in fact I think there should almost be a sell-by-date. I favour tenders as a method of sale - it achieves the same outcome as an auction without all the hype, razzmatazz and undue very public pressure!  

While on this topic, it is relevant to reference the analysis undertaken by highly regarded ecomomists and authors of Freakonomics Stephen Dubner and Steven Levitt who, when analysing the sales of agents homes in the US (as the video below shows) and found that agents marketed their homes for longer; 10 days longer than their clients' homes, and they ended up getting a better price. Makes you think!

Former CEO Alistair Helm is the founder of real estate commentary and analysis site Properazzi.

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One individual's comment on the industry, and a poor story teller with copious envy behind every word. Well done, NBR. You may well be shooting yourself in the foot with this couch potato.

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Bollocks, there's a lot of truth with this one.
Your story rings true for this reader. We are on the market. However, we have the unfortunate and unnecessary stigma attached with a cladded home. Whether leaky or not, (ours isn't). It plays a serious role when trying to sell or market the place and your final sale price.
We were presented with the same sales pitch as above. Over-confident real estate agent hot off other auctions with a 2 1/2 week marketing drive for the property before going to auction. We did challenge the decision as their policy is normally 4-5 weeks and for the substantial advert fee in the Property Press, resulting in 1 1/2 week printed advert. It wasn't enough exposure time or value for money. In the end we went with it trying to show some confidence in his offer.
Sure as eggs, auction night, all other houses sell. Ours, no bids, ones and twos on open home days, some conditional interest before auction day but wanting builders' reports done - alas no time for due diligence.
Result an unsold house that was poorly marketed and a couple of spewing vendors.
Conclusion: A hyped-up everyday Christmas for real estate agents in this climate until one house comes along that requires a little more work to sell and not the usual one method fits all - bang goes the hammer, gone in 2 weeks.
In this climate with a so-called shortage of housing, and quick sales, you can begin to imagine how we feel.

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Not sure why I should be drawn to respond to the negative comments - but I am.

Yes, this article is my opinion. I don't need to explain that. As to poor story telling, well I never claim to be a journalist or novelist. I felt there was value in looking at hypothetical scenario. You may be interested to know that I received an email from someone who stated that the scenario very much matched their own situation.

I have spent seven years in a the real estate industry, studying and analysis the data of the industry. I also know the industry leaders and the business strategies in depth. Further, I have a well-developed knowledge of the global real estate industry and thereby can bring context. My desire in writing my site is to share thought, opinions and insight, as well as data analysis, to help people in the process of buying, selling or working in the industry.

As for envy - sorry, no. I own, with my wife, our own house which we have improved over the years. We don't own investment properties. We are not envious of either buyers, sellers or real estate agents.

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Anon is a nameless pecker and no doubt has a vested interest so ignore that comment, Alistair. I find your articles interesting and well crafted and thought provoking and also balanced.
We run a very busy conveyancing factory shop and what you could perhaps have conveyed a bit more is that, in light of our $20 B leaky building issues, seismic issues and the new Unit Title Disclosure requirements plus the current noises about minimum 20% deposits and so on doing a complete DD in the sorts of timeframes you are referring to above whilst possible is going to cause lots of additional stress amongst the lawyers, valuers, accountants ( if any ) , building inspectors , local authority, bankers, etc, in addition to purchasers and create unrealistic expectations.

I understand real estate rules now prohibit a vendor from bidding at their own auction but auctions are always dodgy proceedings in my book. Until we reached the current ultimately unsustainable prices now being achieved in Auckland it was interesting to see the auctioneers turn the heat on unsuspecting vendors - eg, Blue chip victims with inner-city apartments who would invariably drop their pants to get the monkey off their shoulder in the blink of an eye in very emotional circumstances, but it seems those days are gone for a while at least.

But what you could have also perhaps noted is that purchasers buying at auction are typically buying " as is, where is " so they will have no rights to pursue a vendor if there are water tightness issues and so on, particularly if they have not time to do a proper DD. Vendor warranties and guarantees are deleted in standard auction terms.

Then, of course, there is the whole emotional roller coaster agents seek to exploit at auctions where people readily momentarily depart their senses and pay more than they intended to.

Avoid them at all cost, I say.

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Most bidders (perhaps some acting on behalf of the actual vendor) in the presence of their supposedly faithful agents who were just "adding oil to fire" were already vulnerable, even bullied. Some successful bidders eventually regretted their foolishness after the fall of hammer.....

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One comment I'd make is that the example you have photographed above shows a 'short auction' period of two weeks and is obviously a B&T ad board.
I know all the brands inside and out, and have noticed many B&T agents will use this tactic so that it 'protects' their listing from other agents selling it. (B&T is the only agency where the selling agent is often compensated with a higher percentage than the listing agent) so they get a two-week period protected so they get a higher comm with a list and sell - not quite the right thing for the vendor!
You will find that most of the other agencies stick with a four-week auction period as they, as the listing agent, will get the lion's share of the commission and the extra two weeks allows the vendor to receive the maximum exposure for their property (and, of course, the agents and brands profile!).

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What is this guy's background? Seems like he has an axe to grind against the property industry and one wonders of he has not become the poacher turned gamekeeper.

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I'm selling at the moment and I want the highest possible price therefore am going to auction - why wouldn't I with the crazy prices going on!

And I will then be in the market again. I intend to put the highest I can go on houses I like on pre-auction offers, I have to to stop it going to auction.

It's the way the market is, with cashed-up buyers wanting great places. I don't imagine these first-home buyers are looking at the lower-end suburbs, but rather nicer suburbs where there is competition.

As always in sport, business or whatever, when there is competition things get emotional and heated, and top prices are paid.

I started with a hell hole in Ranui eight years ago and now live in Pt Chev, but I was able to put a big deposit down and had to contend with being broken into and a hell commute. It was just as hard then as it is now to get into the market!

Friends wouldn't even visit, but now I have a better house in a better suburb than they do.

Just because it may not be a palace, don't be put off - anything in any suburb you buy today will look like a bargain in five years.

Those complaining today of high house prices will no doubt also want high prices when they sell!

Only an idiot would market longer than they had to, and with a heated market there is no need to extend the open homes for a longer period for someone who does not have the money to buy it anyway to do more due diligence?!

I find it hard to take anything Mr Helm writes objectively after he tried to corner agents to go on when it was clearly outgunned by Trade Me within a week of launching, and the only people who couldn't understand it were the guys investing and running

Seems a lot of his points are misguided and fairly useless for anyone looking for good advice.

This argument seems to surface every few years. Boring.

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We all know Alistair's background and real estate history. How about you, anonymous, sharing your background with us readers so that we can judge for ourselves your knowledge base and expertise to back some of the claims in your posting?

Let's look at one of the points you make re

Realestate was set up as an alternative to Trade Me and to offer people choices.

You make so many assumptions, but are very light on providing any evidence of substance. to support such.

I respect your opinion, but the true reflection of a person in my book is that when one attacks a persons character or performance, much more respect would be gained from readers, if the writer were to share the source of their information , their own experience and where possible, back such statements by hard cold facts.

The rest of your blog I believe makes a lot of sense and I can relate to where you are coming from.

I also think when one is talking about residential buyers/ sellers it helps if readers know whether comments are made in regards to a residential home or a investment property(s)

A different thought process is required.

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Poor old Anon. So pleased I and so many contributors don't see the world through his/her eyes.

Time nor space allows me to adequately contribute comment about the pros and cons of property auctions that will stand up to the most robust scrutiny and backed by facts and real-life cases.

I have been an auctioneer for over 27 years and started in the property auctions when it was not fashionable to conduct property sales using the auction method and, in fact, I was often stopped in the street by both the public and vendors stating that in their view selling property by auction was bordering on deceipt and at the fringes of law breaking.

That was in the the 1980s.

But my real experience and passion was for very large plant and machinery auctions and I specialised in liquidations and receivership auctions and tenders throughout NZ.

I conducted some of the largest auctions in NZ and I would like to think my clients thought some of the most successful also.

I was on the committee of the General Auctioneers Association, appeared on TV several times and was among the first in NZ to introduce a buyers premium in my field of auctions.

Interesting enough, when I was a committee member of the General Auctioneers I was almost drummed out of the association (a slight exaggeration) because I dared to suggest that sooner rather than later the internet would become a powerful tool to sell items by auction. The rest is history.

I have also been a very small developer and residential property investor and chosen auctions as my first choice of a sales method and bought at auction.

I am no longer a licensed agent but I'm involved in property as a consultant.

I don't mention the above to skite or feed a ego, but to give some credence and background as to my experience with auctions in both fields.

Real estate agents have done a excellent job convincing the public that they should when selling a property using the auction method.

Agents are trained like performing seals and parrots in many instances to practice their spiels not only in selling the auction method to vendors but also learn how to over come objections to the such a sales method.

Don't get me wrong, auctions definitely have their place in selling, but one method of sale doesn't suit all.

Have the right property in the right market with the right vendor and amazing results can arise for the vendor.

The REINZ and many of their members has done a incredible job in raising the professionalism and profile of property auctions both for the public and agents.

I have huge respect for them.

Unfortunately, there are still a huge number of real estate agents who use the auction method for selling only thinking of the benefits for them. They are such good play actors that they are able, because of their way with words and in house training, to convince vendors by suggesting they sell by auction and that they do so in their best interests.

The public are so gulliable and I cringe when I see properties offered for sale by auction that either the timing or the property itself are all so wrong.

Agents love auctions and are the best thing since sliced bread as far as their businesses are concerned.

What other business can operate with virtually no marketing costs to the business owner, very often full selling fees charged and a substantial pay rise every time the property market rises (almost monthly at present).

Until the commission-only method of remuneration for agents is addressed (I personally favour a mix of both salary and performance commision or reward) and buyer's agents introduced that only work for the buyer, I think we will see from many agents in the industry that auctions are promoted solely for the agents benefit rather than the vendors.

Auctions definitely have a place and can and are hugely successful, but I don't accept that one cap fits all.

And when are we, I wonder, going to see a dedicated online property auctions by specialised agency businesses such as evident in the USA.

The Trade Me or Turners auction-like site for real estate property auctions and conducted by licensed real estate agents.

I have for a number of years followed with interest the above in the USA and the results seem very impressive for the vendors and selling costs are minimal.

The cost of selling a property is horrendus in NZ, I believe, but that then is possibly another subject yet to come from Alistair.

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Its heart breaking for Aucklanders trying to get into their first home. We've spent $6000 on inspections valuations and reports over the last 4 years with nothing to show. Out of the 36 auctions we have attended 30 of them all went to foreign buyers who either had more money than sense or never even bothered to show up/view and purchased over the phone on the day.
Most of these house we looked at a now rental properties.
I don't consider myself a bigot, and have 1/5 Japanese heritage. Though I will say I am angry at the lack of control and law governing sales here. For example an Asian owner backed out last second paid out the repercussions and sold it to another buyer simply because he was Asian also. It is disgraceful that the government/immigration has allowed it to come to this.

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