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Do auctions still work in this soft market?

John McGrath
Thursday, March 21, 2019

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It’s not unusual to see a reduced number of homes listed for sale by auction when the market is cooling.  It reflects two trends – fewer owners selling overall and less confidence in the auction method amongst those who are.

CoreLogic’s latest quarterly auction report shows 25,894 homes were taken to auction across the combined capital cities in the December 2018 quarter compared to 32,408 in December 2017. This trend has carried on into 2019 with the most acute change in auction volumes in Sydney and Melbourne.

Weekly auction volumes are down about 30% in February/March 2019 compared to November 2018.

The prospect of going to auction causes anxiety for many sellers, even in the best of market conditions, so of course we expect to see fewer home owners choosing the auction method when the market is challenging. 

But in my view it’s still the best way to sell, especially if you own an ‘A grade’ property that ticks a lot of boxes for buyers.

I have long advocated the auction process as the fairest and most transparent way to buy property. Choosing the best sales method for your property comes down to property type, local market conditions and your personal preferences so, of course, you and your agent need to discuss this and come to a decision together.

However, there are many benefits to the auction process and they’re the same in both hot and cold markets.

Benefits of auction for sellers in hot and cold markets

  1. Auctions create a transparent forum for committed buyers to battle it out, enabling you to truly flush out the very best price in today’s market.
  2. Auction gives you a better chance of a sale in a shorter timeframe compared to private treaty.
  3. The normal 3-4 week campaign timeframe creates urgency and forces buyers to focus and prepare. Lending restrictions mean some buyers need more time to secure their finance these days, so agents are responding by postponing auctions 1-2 weeks, when necessary, to maximise competition
  4. You have three opportunities to sell – prior, at auction or post-auction. An experienced agent with expert negotiating skills knows how to approach all three situations to draw out the best price.
  5. The competition of an auction naturally heightens buyers’ emotions and their desire to ‘win’.
  6. A skilled auctioneer will make the difference between a good sale and an exceptional one.
  7. While it’s typical to see just one or two registered buyers at Sydney and Melbourne auctions today, a skilled agent and auctioneer can work with this. You’d be surprised how many homes are selling for good prices at auction with just one bidder. The auction method has worked – it has forced that bidder to do all their checks and make an offer in the timeframe you’ve dictated.

If you’re going to sell by auction, it’s not only important to find the right agent, you also need the right auctioneer. Just as you would shop around for your agent, you need to do the same with your auctioneer.

I’d recommend attending some of their auctions. If they’re uninspiring, awkward or aggressive, especially when bids are slow off the mark, then I’d encourage you to find one that you are confident with as I believe a great auctioneer can change the likely sale price dramatically

The market might be witnessing a correction in Sydney and Melbourne right now but auction clearance rates have actually improved this year compared to late 2018, mainly due to renewed buyer engagement after the holidays.

In November, the Saturday clearance rate in Sydney and Melbourne was typically in the 40% range, now it’s in the 50% range, according to CoreLogic figures. We generally consider 60% as normal market conditions.

We are seeing that the clearance rate 90 days post auction across the McGrath network is 70.1%, so while it may not see a result on auction day, the auction process is still effective.

My No. 1 tip for auction sellers in Sydney and Melbourne today is to listen to your agent.  Trust their expertise and advice and choose a realistic reserve based on buyer feedback and recent sales of similar properties. 

Published: Thursday, March 21, 2019

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