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.
13 February 2018
More Perth properties may soon be sold under the hammer. Photo: Peard Real Estate
With the Perth property market in a state of recovery, agents are predicting auctions will rise in popularity in favour of the traditional offer and acceptance sales method.
While latest Domain Group auction data revealed there were 180 auction listings in Perth in November, with a clearance rate of 30 per cent — in comparison to Sydney data for the same month of 4,187 listings with a clearance rate of 55 per cent — there were signs more homes will be sold under the hammer in Perth in 2018.
Domain Group data scientist Nicola Powell said a seasonality effect was obvious when looking at auction data for Perth, where there tended to be more homes for auction in the spring months.
Auctioneers expect to be busier in Perth this year. Photo: Dan Soderstorm
She said auctions were ingrained in the Sydney and Melbourne vendor market, and as the Perth property market began to recover, auction conditions might improve.
JLL buyers advocate Lachlan Delahunty said “auction” seemed to be a foreign word in WA.
“However, we should start to get comfortable with the process, as it will soon hit our shores,” he said.
“Properties sold under the hammer signify only three per cent of Perth property. Unfathomable when comparing that to the likes of Melbourne and Sydney with clearance rates of 80 to 90 per cent.
“Hot markets attract auctions – like bees to honey, as we have seen in Sydney in the early stages of last year.
“However, this form of selling is certainly no place for a soft market, which Perth has experienced in recent years, recording clearance rates as low as 30 per cent in the final parts of 2017.”
Mr Delahunty predicted if the WA market continued to improve during the first few months of this year, properties in coastal and blue chip suburbs would start to see the benefits of a bidding frenzy.
LJ Hooker national auction manager David Holmes said auction volumes in Perth remained steady and almost unchanged: 1973 in Perth last year, compared to 1964 in 2016.
“Perth is still a long way off the auction volumes of the eastern states – Melbourne recorded more than 50,671 auctions last year (a 19 per cent increase year on year) with Sydney notching 40,281 (a 16 per cent increase),” he said.
“However, at the end of 2017 and already in 2018, our offices have fielded more inquiries from sellers about the opportunities to auction their properties. LJ Hooker Kalamunda Foothills auctioned four times as many properties in 2017 than they did the previous year and expect to hold even more in 2018.
“Data has indicated a shift in the Perth market, with the first positive price recorded in the last quarter for a long time. When markets begin to recover, that’s when auctions rise in popularity as buyers openly compete to determine what new market value is.”
Rob Druitt, First National Real Estate Druitt and Shead principal and auctioneer, said auctions were on the rise in Perth, with buyers becoming more savvy in their understanding of the process.
“It’s unlikely in the short to medium term that we will catch up to the like of Melbourne or Sydney, however, as our market improves we are likely to see more auctions,” he said.
Mr Druitt said there were many benefits to selling and buying at auction.
“For the sellers, it is a quicker sale process and if the property is worth more than we all think, they will achieve it,” he said.
“For the buyers, in what is becoming a more competitive market place for certain types of properties, if they are organised, they have a genuine opportunity to buy the property in an open fair forum as opposed to properties selling off the market or quickly with multiple offers.
“For the market, it is good as it helps to genuinely set the market value of property and provides immediate feedback to the market on sales evidence and interest.
“Also, if the property doesn’t sell on the day of auction it will come on the market post-auction and is available to conditional buyers.”
Acton auctioneer Boyd Fraser said the benefits of auctions included a compressed campaign for 21 days and a 50 per cent chance of selling under the hammer on the day.
“Both buyers and sellers are in the same forum so transparency in the process is guaranteed. There is a significant difference in the number of days on market,” he said.
Western suburbs were popular areas for auctions, but other standout areas included Spearwood, Hamilton Hill and Coogee, Mr Fraser said.
16 January 2018
As an auctioneer, clearly, I’d prefer that every auction made it to the big day. Sometimes, however, vendors opt to sell beforehand because of their unique financial or personal circumstances.
Can you really buy beforehand?
There has always been some skepticism amongst buyers whether properties are really for sale prior to auction or whether it’s just a price fishing expedition.
In my experience, vendors who are open to selling before auction, generally are committed to the idea if an appropriate offer is made on their property. I generally find there are two types of buyers who make offers before auction.
The first is the buyer who is dipping their toe in the water, so to speak, and hoping to learn the seller’s price expectation. The other type of buyer is one who genuinely doesn’t want to bid at auction perhaps because they’ve missed out on a few properties already and want to learn sooner rather than later whether they’re in with a shot.
Selling before auction happens more often in specific market conditions, of course, but also at particular times of the year like before Christmas.
Some sellers just don’t want to have their properties still on the market over the holidays and for them certainty is more important than going to auction.
So, for those sellers, they are chasing peace of mind more than the best price. Selling before auction can happen in rising and falling markets in my experience. When a market starts to shift to the positive, more buyers tend to make solid offers before auction because they don’t want to run the risk of missing out on the day.
In southeast Queensland at present there are more sales before auction than usual for this time of year, because the market appears to be strengthening. In fact, I don’t think it’s increased this sharply for a number of years. If we use history as a teacher, it may be indicating that the southeast Queensland market is shifting into another gear as we head into 2018. Conversely, when a market starts to cool off, sellers think that they don’t have the same security blanket so they opt to accept offers beforehand.
What are the pros and cons?
Buyers must understand that buying before auction is an opportunity so you really must make your biggest and best offer if you’re serious about securing the property. You can’t try and buy prior by putting your toe in pool – you can only buy prior to auction by diving into the pool.
Don’t make an offer with the expectation that the seller or the agent is going to come back and tell you exactly what their lowest selling price is going to be, because that just doesn’t happen.
They’ll either say you’re close or you’re not even in the same ball park. Also, if a seller is prepared to accept offers prior, it’s unlikely that you will be the only buyer in the running so you must put your best foot forward.
Likewise, if you’re buying a property prior, you almost have to compensate the seller for the risk of them not taking the property to market on auction day. That means that quite often you have to pay a premium because you’re compensating the seller for not going through the campaign that they’ve been advertising for three or four weeks.
For vendors, selling before auction has to involve what I call a #noregretsprice. So it’s the figure that they’re not going to look in the rear view mirror and regret that they didn’t go to auction.
Going to auction could produce a spectacular result on the day if there are a number of competing bidders, backed up by a thorough marketing campaign. The reality is that sellers won’t know what the result will be until auction day – and for some peace of mind is more important, which is fine.
At the end of the day, buying or selling before auction can be a sound strategy as long as the vendor is prepared to accept that a higher price may have been achieved on the day and the buyer understands that they’re unlikely to get a bargain.