Pros and cons of bidding

Few New Zealand agents have rejected auctions, but Australian anti-auction advocate Neil Jenman cites many reasons why more should follow his theories.

He reckons buyers and sellers find auctions frightening, confusing and without a right of redress - only agents understand what is going on.

But Martin Dunn, of City Sales in Auckland, says he is a "reluctant auction fan". He agrees that buyers often do not like the technique, but he reckons sellers approve of it because auctions get the best price.

Jenman says sellers never know how much they could have got with an offer and counter-offer situation - where each would-be buyer has the right to gazump the previous offer and go higher if necessary and all done with time to deliberate, reason, think and take advice. Jenman says auctions rob people of this and stir emotions of greed, jealousy, competition and desire.

But Dunn believes people are well-informed and the auction just forces them to make their best bid on the day.

Jenman, though, says buyers do not necessarily pay their top price - only a tad above what the last person offered, which is often much less than they were ultimately prepared to pay.

Bill Glover, in Auckland, surveyed a pool of auction buyers and found that every one would have paid a much higher price for their home.

But Dunn says the best price is achieved in a transparent way.

Glover also found that at least half the buyers he surveyed assumed an auctioned property would fetch well beyond their means.

Dunn agrees that auctions change habits and cites many sales his firm has made in Auckland's glamorous Metropolis tower. When he puts a unit there up for auction, Dunn says, that "freezes" all other sales. People wait until the auction to see what price a unit fetches before they buy or sell elsewhere in the tower. But people are not put off.

Glover has found, too, that the added stress and long wait until auction day puts even more people off and allows them to find another home, slashing the potential buyer pool even further.

But Dunn says high-profile advertising and a fixed term focuses buyers on a property and allows it to be sold for the highest price the market will pay. If the reserve is not reached, a property can be passed in.

Jenman notes that after the auction, agents focus on how much more people got above the reserve, but no one ever knows how much the property could have ultimately sold for - they just know it went for a tad above what the second-last bidder at the auction offered.



How much does an auction cost you?


Auctioning a house costs the seller more than if they use a fixed price, according to Jeff Cate, manager of Barfoot & Thompson's Remuera office.

"The sales commission does not vary with the method of sale. It is the same whether selling your house by tender, auction or fixed price. The average commission on a $500,000 house would be $14,000 plus GST," he said.

What does vary is the cost of advertising, footed by the seller in either tender or auction, and paid whether the house sells or not.

"We would normally suggest to the vendor, if they wanted to sell their house by tender or auction, that they spend $3000 to $5000 for promotional costs." So the $14,000 bill could rise to nearer $19,000 to put the house under the hammer.

Bill Glover of Glover First National in West Auckland said the advertising bill for a property was usually calculated on 1 per cent of its sale price.

Therefore, sellers would need to spend at least $5000 on a $500,000 property for auction, taking their costs up to $19,000, compared with around $14,000 on a fixed-price sale.

Martin Dunn of City Sales in Auckland said most of his apartment sellers footed the bill for their own advertising, regardless of which technique was used to sell the unit.




Code focus on 4 points

The code drafted by the institute's auction special interest group has gone out to real estate agents for comment and could become part of the institute's rules before the end of the year.

That means that if agents breach the code, a complaint could be laid with the institute and disciplinary action taken involving anything from a censure, reprimand, a $750 fine or taking away the licence to practise by a special board.

The code's main focus is outlawing deceptive bidding at the auction.

It does not outlaw phantom bidding, but it requires that the phantom is "outed" before the auction starts so everyone knows a ghost bidder might be driving prices up artificially.

It also stipulates that if the auctioneer is driving the price up to reach a reserve, the auctioneer must tell people about that before bidding starts.

If asked during the auction if the vendor is bidding through the auctioneer, the auctioneer has to say if this is happening.

The code addresses four broad areas:

* Behaviour before an auction and particularly ensuring advertising is not misleading or deceptive, making it clear to people that the code must be followed and ensuring buyers know the seller can bid (usually via the auctioneer) so that the reserve is reached.

* Behaviour at the auction and particularly informing the audience that the vendor has the right to bid. If the vendor is using a "phantom" or "ghost"bidder in the audience, that phantom must be clearly pointed out, the code says. The auctioneer has to be clear about bids received, how disputes will be resolved and that vendor bidding is banned once the reserve price has been reached.

* Behaviour after the auction - no post-auction advertising should refer to bids at auction.

* General: institute members should report alleged breaches of the code in writing and attach any relevant documents with their complaint.