Homeowners achieve a higher price on average by selling their property at auction rather than accepting offers beforehand, even in a recession, new figures reveal.
While the housing market has begun to skew in buyers’ favor as prices fall and settlement rates weaken, homeowners who need to sell in this recession will, on average, be better off carrying their property up for auction.
The competitive environment, transparent bidding, and the urgency to meet a deadline result in a higher return for sellers who run their campaign on auction day rather than opting to accept a bid earlier.
Canberra sellers had an average gap of 11.5 per cent between the auction price and the highest bid before August, Ray White data shows.
Melbourne and Adelaide followed, where the gap was 11 per cent. In Sydney and Brisbane, the gap was 8 per cent.
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The median home price in Sydney is just over $1.55 million, according to Domain data, 8 per cent of which is $124,000. The median house price in Melbourne is $1.074 million, so 11 percent is $118,000.
Ray White chief economist Nerida Conisbee said auctions were even more important during slower housing markets.
“There is a strong correlation between time on the market and discounting. The longer you stay on the market, the more chances of discounting,” Conisbee said.
“Selling by auction means a quicker sale, so that’s a good result, so you’re less likely to write the property off.
“But we can also see that if you go to an auction you get a better result than if you sell before the auction, even in a slower market.”
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Sydney, Melbourne and Canberra averaged about two auction bidders in August, enough for an auction to start and achieve a better result than accepting bids behind closed doors, Conisbee said.
“Fundamentally, you need two people bidding, having two people bidding against each other is a very transparent process,” he said.
He said the gap widened when the market was more competitive. The average gap between Sydney auction prices and their highest bids was 12 percent in February this year, when the market was strongest.
Cooley Auction auctioneer Michael Garofolo said sellers are unlikely to receive higher bid prices before auction day.
“I’ve never met a buyer who didn’t want to pay less in any market. But especially in a down market, their previous offers will be the lowest on average,” Garofolo said.
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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 the competition telling you to pay more, you’re more inclined to pay more, because you’re more confident that you’re not overpaying,” he said.
“The agent does not have to justify why it is worth more, the market is validating the price.”
He said the urgency of buying the property at auction was another reason sellers, on average, got a higher price that way.
“In any market, good, bad or ugly, if you’re trying to get the best possible price in the shortest amount of time, go to the auction,” he said.
“In this market, if you expect more money, that’s a bad strategy. We are falling on average 2 percent every month.
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“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 down market is the best strategy, because I can tell you that come Christmas you want to sell sooner. The faster you can trade in this market, the better.”
Peter Kakos, general manager of The Agency in Victoria, said the general rule of thumb was that auctions yield better results, but sellers and their agents should watch their group of buyers closely in a down market.
“Buyers love transparency, they will always be looking to pay more than another buyer, and buyer versus buyer generates the best results,” Kakos said.
He said some vendors who had rejected bids at the beginning of the four-week auction campaign sold for less later on.
In other cases, if sellers only have one buyer who has been in the market for some time, they may offer the highest price from the start.
“The key message here is that it takes a great deal of experience from an agent who is able to really understand the market and the buyers and not have tunnel vision to think one size fits all,” he said.
This article first appeared on Sydney’s morning herald
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