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Home owners achieve a higher price on average by selling their property at auction rather than accepting offers beforehand, even in a downturn, new figures reveal.
While the property market has started to turn in favour of buyers as prices fall and clearance rates weaken, home owners who need to sell in this downturn will on average find themselves better off by taking their property to auction.
They market may be turning, but auctions still yield better results for vendors.Credit:Peter Rae
The competitive environment, transparent bidding and urgency to meet a deadline drive a higher result for sellers who run their campaign to auction day rather than opting to accept an offer prior.
Canberra’s sellers had an average gap of 11.5 per cent between auction price and highest offer prior in August, Ray White data shows.
That was followed by Melbourne and Adelaide, where the gap was 11 per cent. In Sydney and Brisbane, the gap was 8 per cent.
Sydney’s median house price is just over $1.55 million, on Domain data, 8 per cent of which is $124,000. Melbourne’s median house price is $1.074 million, so 11 per cent is $118,000.
Ray White chief economist Nerida Conisbee said auctions were even more important during slower property markets.
“There is a strong correlation between time on market and discounting. The longer it stays on the market the more chance of discounting,” Conisbee said.
“Selling by auction means a quicker sale, so that’s a good outcome, so you’re less likely to discount the property.
“But we can also see if you go to auction you achieve a better result than selling prior to auction even in a slower market.”
Competition, urgency and transparency are the drivers for a higher price rather than offers prior to auction, experts say.Credit:Rhett Wyman.
Sydney, Melbourne and Canberra all had an average of about two bidders at auctions in August, enough for an auction to start and achieve a better result than taking offers behind closed doors, Conisbee said.
“Fundamentally, you need two people bidding, having two people bidding against each other it’s a very transparent process,” she said.
She said the gap increased when the market was more competitive. The average gap between Sydney auction prices and their highest offers was 12 per cent in February this year, when the market was stronger.
Cooley Auction auctioneer Michael Garofolo said vendors were unlikely to receive higher prices from offers before auction day.
Reducing the days on market was key to avoiding discounts, agents said.Credit:Rhett Wyman
“I’ve never met a buyer who didn’t want to pay less in any market. But in a downturn market especially, their offers prior is going to be on average the lowest it’s going to be,” Garofolo said.
But when the same buyers attend the auction and see social proof in the competition, they tend to be willing to pay more, Garofolo said.
“When you see competition is telling you to pay more, you are more inclined to pay more, because you’re more confident you’re not paying overs,” he said.
“The agent does not have to justify why it’s worth more, the market is validating the price.”
He said the urgency to buy the property at auction was another reason why sellers, on average, achieved a higher price that way.
“In any market, good, bad, or ugly, if you’re trying to achieve the best possible price in the shortest period of time, go to auction,” he said.
“In this market, if you’re holding out waiting for more money, that’s a bad strategy. We’re dropping on average 2 per cent each month.
“If you don’t sell tomorrow, and you’re waiting for December, you’re waiting for less money. The writing is on the wall.
“Reducing days on market in a falling market is the best strategy, because I can tell you come Christmas you wish you sold earlier. The quicker you can transact in this market the better.”
Peter Kakos, The Agency general manager of Victoria, said the general rule of thumb was that auctions yielded better results, but vendors and their agents should look at their buyer pool closely in a falling market.
“Buyers love transparency, they’ll always look to pay more than another buyer, and buyer against buyer brings out the best results,” Kakos said.
He said some vendors who had declined offers early in the four-week auction campaign sold for less down the track.
In other instances, if vendors only had one buyer who had been in the market for some time, they may offer the strongest price early on.
“The key message here is you need a tremendous amount of experience from an agent who is able to really understand the market and the buyers and not be tunnel-visioned into thinking one size fits all,” he said.
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