Craze for house auctions sets clean-up code on way

When West Aucklander Terrie Beadle found the house she loved on Titirangi's Scenic Drive, she just had to have it.

Back in 1998, she and her husband saw the advertisement for the elegant, spacious home in a quiet area and realised it had that magic combination of factors.

They paid $335,000 at auction, but the experience left them bitter and upset.

Not only did the house need more work than was first apparent, but the way the property was sold turned them off auctions.

They felt particularly tricked by a phantom bidder.

"We felt pressured and it was a confusing situation," Mrs Beadle said. "No one explained the process to us and it was terrible.

"There was a ghost bidder there who vanished into the crowd at the end. It's a very manipulative process."

So when they sold the house for $425,000 last year, they went through Glover First National, a real estate business which recommends vendors reject auctions and instead use the fixed-price system.

They found the more old-fashioned method stress-free, understandable for all involved and they got a great price.

The Beadles are just one of 105,121 people who sold a house in the March year, setting a new national record by eclipsing the previous year's sales of 83,756.

Many of the $18 billion of properties sold in the March year went under the hammer, particularly in Auckland, where auctions have become a popular way of selling.

Although the Real Estate Institute collects no data on auctions, it is estimated that fewer than 10 per cent of homes went under the hammer a decade ago. Now, even cheap houses are auctioned.

Barfoot & Thompson doubled its numbers of auctions and tenders in the March year when it sold $5 billion of property. Harcourts sold $8 billion, much of it at auction. Bayleys Real Estate sold $4 billion of properties and auctions many houses.

Two Bayleys auctioneers in Auckland, Richard Valintine and John Abbott, boast "over $7.4 billion worth of auctions between them" and the firm auctioned $525 million of property sales last year, a $129 million increase on the previous year.

"Auction sales are an integral part of our business and are becoming the preferred way for many clients to market their properties," they say in marketing material.

Barfoot & Thompson in Remuera sells about a quarter of its exclusive properties by tender and 75 per cent of its $1 million-plus homes by auction, says salesman Paul Barnao.

"Tenders have become increasingly popular for homes in the $3 million to $4 million bracket which are not so suited to auctions."

With the tender system, properties are marketed usually over a month-long period with no price expectation. As with auctions, sellers foot the bill for all advertising.

"Tenders are becoming more popular because of the rising value of properties," Mr Barnao said.

Auctioneer Ross Foreman says his Bayleys Mt Eden office sells 90 per cent of its houses at auction, a technique he favours over the tender process, which he says lacks transparency and needs a good cleanup.

As national chairman of the auction special interest group of the Real Estate Institute, he knows about cleanups. This week, he released to the Herald his draft code of conduct aimed at outlawing dubious practices at auctions to make the process clearer and easier for those involved.

The four-point cleanup will become part of the institute's rules if the 12,000 agents approve it, and next week it will be sent out to them for comment.

These changes are in line with a cleanup of Australasia's most active auction market, Melbourne, as the Victorian state government looks at passing tough new laws to clean up sharp practices there.

It proposes banning auctioneers from secretly accepting bids by the vendor, and imposing a A$24,000 maximum penalty, as well as a A$6000 fine for people who prevent or hinder a rival bidder.

But in New Zealand a new code of practice just issued fails to ban the widely accepted vendor bidding or even the more-frowned-upon phantom bidding.

Both are techniques whereby the auctioneer accepts fake bids - either bidding on behalf of the seller or from stooges in the crowd - in an attempt to spark a bidding frenzy and ramp up the price of the house being sold.

Barfoot & Thompson disapproves of both and has banned fake bidding, but most other agents back vendor bidding, saying it is a legitimate practice which enables a reserve to be reached.

Bill Glover of Glover First National in West Auckland thinks auctions generally are deceptive and he has joined a small band of renegades who have thrown away the hammer to follow the teachings of Australian real estate author and whistleblower Neil Jenman.

Glovers, Cox Partners in Napier, Lovell Real Estate in Tauranga and Fourways Real Estate in Timaru are all working towards completing the Jenman system and gaining approval.

"Wow ... four, huh?" said an unimpressed Martin Dunn, auction fan, head of Auckland apartment sales specialist City Sales and former Auckland district vice-president of the institute. City Sales auctioned about 70 apartments worth $16 million in the past year, but he confides that most buyers do not like auctions: "It puts them on the spot and demands action, saying that this is going down whether they like it or not. The property will be sold."

Mr Jenman has a string of reasons why he reckons the highly emotive business of auctioning a house fails to get the best price.

Auctions "involve massive deceit where inexperienced consumers are most vulnerable, conditioning sellers down in price, pushing buyers up in price and making sure agents get paid no matter what."

But his books, theories and training system find little favour with the Real Estate Institute here.

Its president, Graeme Woodley, says few people here listen to Mr Jenman. Most of the 12,000 agents do not follow his systems and only four agencies are completing his training, which involves regular trips to Australia.