Grant Child from Eves Realty in the process of a real estate auction. Photo/George Novak.
Grant Child from Eves Realty in the process of a real estate auction. Photo/George Novak.
I'm about to buy my first Kiwi home.
My husband and I have found several properties we like, and they're going to be auctioned.
My initial reaction was, why can't they just price the home? That way, we know whether we can afford it.
I pose this and other questions to realtors, managers, auctioneers, buyers, sellers, the chief executive of the Real Estate Institute of New Zealand (REINZ, an industry organisation) and the Real Estate Agents Authority (REAA, an independent government agency that regulates the industry).
The REAA defines an auction as an "open process where buyers bid against one another to purchase a property".
The vendor sets a reserve price, which is the lowest price they'll accept. Auctioneers say this may happen the day before the auction or even on the day.
Realty Services auction manager Grant Child, who auctions properties for Eves and Bayleys in the Bay of Plenty, says: "The auction is the most transparent way for buyers to buy. You can see and hear what your competition is doing. Otherwise, you could have all offers presented in a sealed envelope and you don't know what other buyers are doing."
I decide to send my husband to the auction and let him have heart palpitations and sweaty palms. I was nervous enough buying our minivan at auction by phone.
I did attend a buyer's seminar and watched a half-dozen homes presented for auction during two separate periods.
Standing in a packed room, listening to bids increase by $1000, $10,000, and $20,000, sent my heart racing like a jet fighter on a mission.
...be encouraged, knowing you may have to compete for something someone else wants. It's great for resale.
Two homes attracted no bids, three homes sold during auction proceedings, and one beachfront home sold shortly after auction for one million dollars.
One couple I spoke with say they watched 95 homes hit the auction block late last year while conducting research to buy their Mount Maunganui home at auction in December.
"Only seven homes, including ours, sold on the day," says the buyer, who asked to remain anonymous. "How do you find out what your home's worth if you don't get a bid?"
Grant Child's response? "My auctioneer's hammer is not a magic wand; I'm not a miracle worker."
He says most people judge success or failure at auction day and it's easy for the vendor to blame the auction as a failure.
Auctioneer, Grant Child, takes bids during an auction held at the Eves Bayleys auction rooms on Cameron Rd. Photo/file
"If there are no bids, either the buyers weren't in a cash position or the buyer wasn't in the market. If there were bids and the vendor still owns the property after the auction, it could be because they had expectations beyond what the market was willing to pay. If a vendor goes through the same period of time marketing a home and doesn't get a bid, they're no worse off than a vendor who set a price and didn't get an offer during the same time frame."
Being in a cash position means buyers have arranged financing and are not awaiting sale of an existing home before buying a new one. The REAA website says auction sales and purchases are unconditional. Once a bid is accepted and the auctioneer's hammer has fallen, the sale must proceed.
The organisation suggests buyers do their homework before auction, including getting council reports; a Land Information Memorandum (LIM), which reveals rates and issues with the home; a building inspection, and solicitor's perusal of the home's title and Sale and Purchase Agreement.
Buyers may also choose to get a registered valuation before auction.
Says Real Estate Institude of New Zealand CEO Helen O'Sullivan: "The key is you need to have done due diligence previously. I always recommend observing a number of auctions you don't intend to buy at to get a feel for the process and observe bidding strategies you intend to employ. Take a support person, maybe a trusted adviser to remind you of your financial limits."
Standing in a packed room, listening to bids increase by $1000, $10,000, and $20,000, sent my heart racing like a jet fighter on a mission.
Several weeks before our auction, my husband learned he would be in Brisbane for work that day. That left me to close the biggest financial deal of our lives.
Sellers say the other side of auctions can be just as nerve-wracking - and just as rewarding.
Des Steens, who sold his home on Papamoa Beach Rd late last month, says he and his wife decided to auction their property after failing to find similar comparable home sales.
"It's a unique house in the way it looked and the view. We felt we had a better chance of getting fair value of the house." Steens says he was initially reluctant to pay upfront fees, but the $1000 he and his wife spent on marketing paid off. "When you go to sell a house you want to get money, not hand over money. It's up-front money and you're not guaranteed a sale."
Grant Child says Eves and Bayleys do not charge extra for auctioneer services. Neither does Harcourts, according to general manager and director Nigel Martin.
Mr Martin says 45 per cent of properties his company listed in January were auctions.
"We've seen a big increase in the percentage of auctions in January as opposed to last year."
He says buyers, many of whom come from Auckland, have an increased awareness and understanding of the process.
"They've sold via auction in Auckland. They're not afraid in coming along. It's the most up-to-date transaction you can do - you can see where buyers are and where the market is."
Harcourts does not provide auction statistics. But numbers from Realty Services, which operates Eves and Bayleys, show 752 auctions for fiscal year 2012-2013 (April 1-March 31); 734 auctions for FY 2013-2014; and 670 so far this fiscal year.
"We expect to hit around the 750 mark," says Mr Child. He says the company had fewer than 500 auction sales in 2011-2012.
"People are a lot more comfortable with the auction process. In the old days, it was just for mortgagee sales or unique properties."
Real Estate Institute figures show nearly 14,000 property auctions nationwide representing 19 per cent of all sales. In 2013, auctions made up 21 per cent of sales, and 12 per cent of sales in the Bay of Plenty were by auction last year, compared with 11 per cent the year before.
Last year, the institute reports Auckland auction sales peaked, topping 45 per cent. "In a market like Auckland or Christchurch, an auction is just a formalised multi-offer process," says the institute's Helen O'Sullivan.
Auctioneer Grant Child says that applies to the Bay of Plenty too. "When we reach auction day, the calling of the auction is a different way of negotiating the sale between buyer and seller."
During the Eves auction buyers' seminar, Mr Child tells us to "be encouraged, knowing you may have to compete for something someone else wants. It's great for resale."
He also explains vendor bids, which only the auctioneer may offer. "They'll be clearly disclosed and are only used below the reserve price or the auctioneer has to buy the house."
If the home doesn't reach reserve, he says, the highest bidder can negotiate with the vendor to bring the bid to an acceptable level. After that, bidding resumes on the auction floor and other bidders can jump in.
Buyers can also bid by phone. Mr Child tells us of one instance where an Auckland bidder was involved in a car crash en route to Tauranga. "She secured her home from Middlemore Hospital."
Winning bidders must pay a 10 per cent deposit on auction day.
Auction strategies abound. Mr Child says work out beforehand your "like to pay," "happy to pay," and "absolute ceiling" bids.
He advises bidding early and bidding back strong and fast; my building inspector recommends a last-minute "king bid" and other people suggest asking a friend or realtor to bid on my behalf.
On the day of my auction this week, I bring my realtor for support. I want to bolt when she tells me the other bidder for the brick and tile four-bedroom Papamoa home we want is on the phone from Auckland.
Just before Thursday's auction, I write on my notepad, "I never have to do another auction again." Twice. I also said "never again" after birthing my first child.
I raise my pen as calmly as possible to bid. The Auckland party never bids; the auctioneer offers vendor bids, which I top until the home is close to reserve. I negotiate the rest of the sale outside the auction room and finish the deal inside. Mr Child's hammer drops. "Sold!"
We got the house for a good price - and I bought my first Kiwi home at auction.
Auction tips for buyers
- Research LIM, title, council reports, value, neighbourhood. - Commission building inspection. - Arrange for a solicitor to check the Sale and Purchase Agreement before auction - Arrange mortgage and finance, including 10 per centdeposit for day of auction. - Register as a bidder in advance (not legally required, but recommended in case someone makes a pre-auction offer or new information becomes available). - Auction tips for sellers - Appoint a sole agent. - Decide whether to accept pre-auction offers. - Set a reserve price. - If bidding comes close to, but doesn't reach reserve, can put property on the market and accept the highest bid (reserve no longer applies). Can tell the auctioneer the property is to be passed in. Auction concludes as reserve price has not been met.Source: Real Estate Agents Authority www.reaa.govt.nz
