Time for WA sellers and agents to embrace auctions
18 June 2018
Buying and selling property in WA has traditionally been by way of a conventional private treaty arrangement, however buyers and sellers are missing out on a more pure form of transaction, and that’s the auction.
Granted, auctions are becoming a more accepted selling method and the numbers of weekly auctions in WA has increased significantly over the past five years, but still lag a long way behind private treaty sales and the Eastern states. So why is that we’ve been slow to jump on the auction bandwagon?
Firstly, WA’s law for property transactions using the current “Offer & Acceptance” method protect both buyer and seller and in the majority of cases are easy to follow. The system works effectively for all parties to the transaction including the buyer, seller, settlement agent/conveyancer and banks. The downside of this system is that is can be time consuming and in many cases is conditional upon buyers obtaining finance, property inspections, having to sell their current home, etc.
More importantly, the system has a major flaw in it and that’s the asking price is disclosed and typically buyers knock the price down to where they feel comfortable – so it’s not good for sellers.
So why should we look to auctions? The auction system is the most pure form of selling and buying as there are no “secrets” surrounding price or selling terms; all terms are provided in the marketing campaign and the buyers set the price on where they see value. Selling by auction in most cases is quicker than private treaty. And the seller has three bites of the cherry; sell before auction day, on auction day or usually within 30 post auction day.
There are two main misconceptions surrounding auctions:
1. They cost too much. The cost of the auction is merely the auctioneer’s fee for calling the auction and working with the seller, buyer and agent to achieve the desired result. Typically, an auctioneers’ fee is in the vicinity of $700 to $1000. All other costs are associated with the marketing campaign to promote the property.
2. Auctions only “work in expensive areas”. That’s just a suburban myth. There’s many examples of properties below the current Perth median price of $510,000 selling at auction.
WA is one of only two states, the other being Tasmania, that don’t have a cooling off period in our property contracts. A cooling off period allows the buyer to “break” the Offer to Purchase usually between 2 to 5 business days after the offer has been signed. In other words, if the buyer changes their mind for whatever reason they can legally break the offer and walk away for a very small consideration to the seller, usually between 0.2% – 0.25% of the purchase price.
As WA doesn’t have cooling off provisions in our property contracts, this makes it far too easy for sellers and agents to default to Private Treaty transactions. If cooling off provisions were introduced to our property contracts, I’d predict a huge increase in the number of property auctions taking place in WA.
Finally, too few real estate agents embrace auctions and the auction process with vigor. They lack confidence and in some cases, the ability to explain the different marketing options available to sellers and automatically default to Private Treaty. This is a marketing injustice to sellers and the sooner we can demystify and legitimise the auction process for both buyers and sellers, the better.