Auction Winner: The Seller or The Buyer?

This is a question often asked when the property market is strong – as is the case in Sydney, Melbourne, Canberra and Newcastle.  Sellers almost always have the edge in a competitive auction environment according to experts.

A solid sign that sellers are surpassing their reserves on the day is when auction clearance rates are higher than 70% weekend-in, weekend-out.

For the auction strategy to be effective, it needs competition and bidders enthusiastically battling it out beyond the reserve. A market that is ripe for a robust auction is one with low levels of supply and plenty of buyers frantic to purchase.

The auction clearance sale in Sydney was 81% as of 8 April 2017 whilst it was 79% for NSW. Auction is almost impossible to resist when the auction clearance rates are above 70% or even 80%. (  I’ve been recording the NSW Auction Clearance Rates for a few years now and it has only dropped under 70% once since this time last year  view here.

When the clearance rate is low, the preferred sale method is usually a private treaty because the market supports buyers. However, even when the market is robust, one would not necessarily be able to sell a property through auction.
For example, if your apartment is one of several identical ones in the same complex on the market, you may not be able to hold an auction as the market is hot. In the same vein, if a home is one-of-a-kind and only a specific buyer will be attracted to it, auction may not be right either.
In most other circumstances, it’s the best method to sell because it lets emotion push competition.
But the buyer can also benefit. Since there is usually no cooling off period and no conditions included in an auction, sellers may be more agreeable to negotiate when a property has been passed in in order for them to sell in these conditions.
There is also a level of transparency for buyers that can only be permitted in an auction. During an auction, buyers see who the bidders are and know who their competition is. In private treaties, buyers depend on the agent to keep them up to date on any development with regards to offers.

How buyers can prepare for an auction
Here are some work you need to do before an auction:

  • Go to other auctions. Observe to become familiar with what it looks like and what occurs there.
  • Arrange your finances. Make sure you have prepared your deposit and your loan pre-approved in writing.
  • Complete all inspections – building and pest inspections and other tasks must be finished ahead of time.
  • Pour over the contract. Get a copy beforehand and examine the contract with your lawyer. You can modify the terms, conditions and the settlement date if you prefer.