Diana Clement: Auctions not always way to go

Some agents simply don't use auctions at all. Photo / 123RF

Auctions are the bane of some home buyers' lives. They find the home of their dreams or one they can at least afford, get an expensive building survey done, sometimes pay legal fees, just to be pipped on auction day.

When markets are hot, auctions are all the rage. When the market cools, more properties are passed in.

Some agents simply don't use auctions at all. Precision agent Andrew Dorreen has sold $100 million worth of properties in the past four years, all through face-to-face negotiations.

He points out that his market starts at $2 million, and that he's not against the auction process.

In upmarket properties on the the North Shore auctions are not the best option, even in a hot market, he says.

"By selling your property by auction you are (only) exposing your property to cash buyers on any particular day," says Dorreen.

"(Buyers) have to be 100 per cent unconditional and pay a 10 per cent deposit on the day. If you come in on the 4th week of marketing you have 24 hours to make an unconditional offer.

"The method I use doesn't rule anybody out from purchasing the property. It gives the vendors an unrestricted chance to see what the market values are at for the property."

There may well be buyers who need five working days to get their finance. Or as happens sometimes a potential buyer, who isn't in the market, suddenly spots his or her dream home and can't get bridging finance in time.

"They may be halfway through painting their house and not actively looking to purchase, but (may be able) to with a longer settlement date," says Dorreen. Selling by negotiation allows such buyers to participate in the process.

Kiwis are conditioned to believe they will get the best sale price for their home from auctions. Sometimes they will.

"Most properties are sold by auctions so it has become the norm," says Dorreen.

"However, once vendors are exposed to the process and they are coached through they realise by using a different method their house can be appealing to a much wider audience."

The vast majority of his sales go unconditional before the deadline, which is many vendors' worry, says Dorreen. "It shows you the method is very successful."

From an agent's point of view, selling by negotiation or tender takes more work than by auction. But Dorreen says it returns better results for the vendor.

Arguments against auctions include situations where vendors are put under pressure on the day or in the emotional aftermath of an auction to agree to accept bids below what they believe their property is worth.

At an auction vendors are in an emotionally charged situation and don't necessarily have sufficient time to think through decisions.

Another argument is that auctions don't always achieve the highest price because the buyers will only offer what they have to, which might not be their best price.

It could be just $500 or $1000 more than the best price of the second-highest bidder.