The auction game

In part one of a two-part series we dissect the auction process - this week from the seller's standpoint.

NEXT WEEK: Auctions from a buyer's perspective

Whether you're a seller or a buyer, the auction process can be intimidating unless you are well-prepared and know exactly what's required and what to expect on the day.

Mark Sumich, an independent auctioneer who owns Cahill Real Estate in Auckland, offers the following advice to auction novices:

Get the right agent for the job

Select an agency and salesperson that has lots of auction experience. Get the salesperson to show you testimonials, which indicate experience and results. They need to demonstrate they are competent at handling the whole process. It even comes down to the agent's ability to handle buyer enquiry correctly. Someone who inadvertently says the wrong thing can rule out prospective buyers. Ask them to take you to one of their company's auctions to see how they work.

Organise the infrastructure

An agency must have management and systems in place to move the property through the process. Auctions are backed by a professional marketing campaign with a series of advertisements, fliers and quality photography. They're all important - if you're let down by any one of these aspects, it can be the difference between success and failure. The salesperson and seller will agree on a promotional budget and the salesperson will book the advertising on the seller's behalf.

Remember, the commission fee you pay is separate from the promotional fee. Usually the commission starts with a $500 administration fee. Then you are charged between 3 per cent and 4 per cent on the first $250,000, which reduces to 2 per cent on the balance. Most agencies itemise separate charges for other services - the auctioneer, signage, advertising, LIM reports, etc.

The importance of a good auctioneer

Usually the choice is made for you by the agency you select to market your property. With careful, deliberate strategies, a good auctioneer can overcome problems a property may have. Some auctions are easy. But when you're working with only one or two bidders, you need someone who is very skilled. Some agencies don't charge for the auctioneering service, while others include it in their promotional fee.

The terms and conditions of sale

The salesperson will help you fill in the documentation that outlines the terms and conditions of sale, the settlement date and chattel lists. You can add clauses that will facilitate a smoother sales process, such as the purchaser acknowledging that the pool fencing does not comply with the council's regulations.

In rooms or on site?

Different agencies have their own preferences. Some hold their auctions in dedicated rooms equipped with a video screen, meeting rooms and phones. Others prefer holding them on site to capture the ambience of the property and to take advantage of the mood of the crowd.

Open homes

The agent holds a series of well-publicised open homes, usually over a period of three to four weeks, to bring as many potential buyers to the auction as possible. During this time, they talk to interested parties to find out what price might be achieved for the property.

Feedback is collated on a weekly basis and presented to the seller to keep them up to date with how the sales process is proceeding. If the marketing campaign has failed to draw interest and there are no likely bidders, the salesperson and seller must review the campaign and decide how to re-pitch it.

The reserve

After several weeks, the salesperson will have gleaned the price parameters buyers seem to be willing to pay for the property, so a reserve price can be set. This can be the level at which sellers are prepared to start seriously negotiating for the property. Sometimes the sellers will obtain a valuation to help them decide on a reserve figure. Sellers sign a reserve form, authorising the auctioneer to sell at or above this level.

Auction day

The seller meets with the salesperson and auctioneer before the auction to confer on how the auction will proceed. They'll discuss the options if the property doesn't sell under the hammer. The salesperson will have spoken to those who have indicated interest in the property and made sure they are aware of how to bid. The auctioneer will read out the conditions of sale. He or she will describe the property and engage the audience to create a positive mood for buyers.

If the property sells

Both the seller and buyer sign the sales contract and the buyer pays their deposit to the agency, which is held until the remaining final money is paid on settlement day.

If the property doesn't sell

The salesperson normally negotiates with the highest bidder to find a price level the seller is comfortable with and is willing to sign an agreement. This usually happens over the next few days or weeks, but can take longer.

No bidders

If the campaign doesn't identify any cash buyers, then the salesperson will negotiate with the best conditional offers. If all else fails, the seller and salesperson may decide to switch to another selling method.