Passed in... Why failing to sell at auction is bad for your wealth

As a property seller, it is extremely disappointing when the price interest in your home falls short of your expectations. Failing to achieve your price target will happen in one of two ways – private failure or public failure. Failing privately means the agent submits the current buyer’s price interest/offers on your property to you and you decline the offers. You then decide to continue looking for another buyer or you withdraw from the market. Either way, your business remains your business.

When this happens at a public auction, whilst you may be disappointed, the failed campaign has more than likely damaged the value of your property and your business is now everyone’s business. It becomes common knowledge that you tried to sell at auction and failed - and the price that you declined is now published in a multitude of media outlets.

When faced with this logic, most agree that failing to sell at auction is not a good look for the seller, however, what is often overlooked is that no one has ever paid upfront advertised fees, booked an auctioneer and expected the auction to fail. In fact, everyone who has ever embarked on an auction campaign has done so because they expected their property to sell.

Where does the auction stop?

A wonderful question to ask yourself in a cooling market is – how do you have an auction with 1 buyer? The answer is you can’t. The second question that many people don’t ask is what happens if a cashedup emotional buyer and a bargain hunter are the two bidders for your home? The answer is the emotional buyer will stop one bid above the bargain hunters last bid. Due to the fact the bargain hunters last bid is likely to be well below the seller’s reserve price, the property will then be passed in and the auction has stopped.

The emotional buyers have just been alerted to the fact that they were about to pay more for the property than anyone else in the open market is prepared to pay. In this situation, if the emotional buyer was prepared to pay $50,000 more than the bargain hunter, the seller stands to unwittingly lose up to $49,000, as a lack of competition stalls the auction. This is the practical reality of public auctions – they require multiple bidders all prepared to pay above the seller’s reserve price to work. The notion that 10 bidders will turn up to bid at every auction is more fiction than fact.

Let’s say the seller hangs tough though. The auctioneer will sometimes disclose the seller’s reserve to themarket/crowd, usually in the form of a vendor bid.

The emotional buyer cannot believe their luck - the reserve price is lower than they were originally going to pay for the home, its sold! The sellers are then told by their agent of the great result and how lucky they were to sell on the day in “this climate”.

Only the emotional buyer knows that the public failure of the auction drove the final selling price down. The seller will never know and the agent does not want to know.

Market Conditions

In a buoyant environment where multiple emotional buyers are turning up to outbid each other at auction, the risk of public failure does not loom as large. The question of whether you sell for the highest price or a high price then comes into play.

It can be an achievement finding one good buyer for your property at present, so why choose a strategy that requires at least 2 good buyers?

If public auctions continue to flounder, sellers are putting the sale of major assets through the riskiest sale process available. The advertising money is at risk, the highest bidder’s confidence in the property is at risk, achieving the best price is at risk and the public deadline (that was meant to pressure the dozens of buyers) now hangs over the sellers, pressuring the one party it wasn’t meant too.*

 

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