Home' API Magazine : November 2014 Contents 48 n APIMAGAZINE.COM.AU n NOVEMBER 2014
THE DECISION TO BUY OR SELL A HOME NATURALLY REFLECTS A
myriad of personal circumstances and agendas. These may include
relocation for employment; the need for a larger home to cater for
a growing family; the desire to downsize into something smaller as
the family numbers decline; the aspiration to move to another more
desirable location; the desire for a higher standard home; retirement;
a divorce settlement; or decisions reflecting the nature of a residential
property investment portfolio.
For home sellers an important supplementary decision is
determining the appropriate marketing mechanism for the sale of
their property. There are two primary methods traditionally used by
home sellers to market their properties – private treaty or auctions.
The selection of either method is again highly subjective but can
be influenced by a number of important factors. These include the
location of the property, the type of property, the personal nature and
circumstances of the sale requirements, the time of the year, the state
of the local real estate market and the marketing costs involved.
Marketing a home through an auction process favours local
market circumstances with higher levels of competition for
property. Competition amongst buyers
for a particular property in an auction
environment is designed to maximise
price outcomes with higher numbers of
qualified bidders theoretically equating to
Auction activity is typically higher in
inner city areas where there’s usually
higher competition for homes. It
increases generally as the housing market
activity cycle rises, with sellers seeking
to maximise price outcomes in a more
competitive environment. A higher level of competition for property
not only reflects rising underlying housing market activity, but also
the seasonal housing market cycle.
Auction numbers, both in total and as a proportion of overall sales
activity, rise in spring and autumn as greater numbers of properties
are marketed during these periods. This primarily reflects the end of
year or beginning of year decision-making focus of buyers and sellers.
More higher-priced properties are typically marketed in spring and
autumn, which also tends to favour and inflate auction activity levels.
Auctions are typically conducted within strict regulatory guidelines
that are designed to ensure the transparency and legitimacy of the
marketing process for both buyers and sellers. Generally genuine
bidders must be authenticated and registered, bids from the vendor
must be acknowledged, reserve prices set and also acknowledged, and
comprehensive sale and property details documentation provided.
Auctions can be expensive and time consuming, with a typical
auction campaign running between four and six weeks as the agent
seeks to gather, through widespread advertising, as many interested
and capable potential buyers on the day.
Auction costs are usually carried by the homeowner and can
be pricey, not only in respect of the comprehensive advertising
required, but can also include other incidentals such as temporary
home furnishings and other improvements to maximise the
property’s appeal. Auction campaigns can be burdensome for
sellers, with numerous property inspections and a general
dislocation and disruption of usual living patterns as the marketing
Naturally there are no guarantees of success in an auction campaign,
with the outcome again reflecting the personal agenda, circumstances
and capacity of both sellers and prospective buyers. The jeopardy for
sellers is that after the expense, dislocation and lengthy duration of an
auction campaign an acceptable sale may not be realised.
Auctions elevate uncertainty and stress for both buyers and sellers.
Buyers must openly and competitively bid against each other to
secure a property and sellers are highly motivated to accept an
outcome on the day.
Regardless of the benefits or deficiencies of auctions, this method
of selling property is becoming more popular, with buyers and sellers
increasingly likely to embrace insights into optimal auction buying
and selling techniques.
Auction sales are becoming more popular in Australia in markets
with existing strong auction cultures such as Melbourne, emerging
auction markets such as Sydney, and in other markets where private
sales dominate such as Brisbane, Adelaide and Perth. This reflects
the exposure of auctions through popular culture, such as reality TV
shows, the increasing general exposure to the auction process as a
participating buyer or seller, and rising promotion of this technique
by the real estate industry.
Auction sales in Melbourne accounted for 30 per cent of total sales
in 2013, which was clearly the highest of all the capitals and was a
similar proportion to those recorded by that city during the boom
period of 2002 and 2003. In Sydney, auction sales accounted for
more than 20 per cent of total sales in 2013, which was the highest
proportion ever recorded by that city. Auction sales in Brisbane by
contrast accounted for less than five per cent of total sales in 2013,
although again this was a record proportion for that city. Around a
steady six per cent of sales in Adelaide were realised by auction in
2013 with less than one per cent in Perth. API
“Competition amongst buyers for
a particular property in an auction
environment is designed to
maximise price outcomes.”
n DR ANDREW WILSON is the Domain group senior economist. Follow him on
Twitter @DocAndrewWilson or listen to him on The Property Hour on Radio 2UE
on Saturdays from 2pm to 3pm.
INVESTORS’ MARKET VIEW n Dr Andrew Wilson
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