To auction or not to auction? The pros and cons

In some cases, selling at auction can be a great way to get a property sold in a timely and efficient manner. Here are some key advantages.

• You may sell your property faster: Generally speaking, auctions are one of the fastest ways to sell a house in Aotearoa. With a set auction date, the pressure is on for potential buyers to act quickly and decisively, leading to increased competition and (potentially) a higher sale price. This could be a good option for you if you’re eager to make your next move and need to sell within a set timeframe. As long as the reserve (the minimum price you’re willing to accept) is met, you might have the money in your pocket sooner than with other selling processes.

• Only serious buyers can participate: Property auctions are always unconditional and legally binding in Aotearoa. Once the hammer falls, the buyer is legally committed to purchase the house; they can’t backtrack or renegotiate the contract without heavy financial and legal costs. So buyers need to do their homework in advance, including getting their finance approved, property reports ready, and building inspections done. Compared to conditional selling methods, an auction could save you a lot of time.

• The seller is in control: With an auction, you’re in the driver’s seat. You get to decide the reserve price and settlement date that suits you and buyers bid under those terms and conditions. What’s more, the reserve price protects you as a seller: the house won’t sell unless the bidding reaches a pre-agreed amount (which buyers don’t know in advance).

• You may attract a greater buyer pool: Sometimes, buyers are put off by asking prices. But with an auction, there’s no visible price tag and buyers can’t compare it on price alone. In turn, this may increase the potential buyer pool, and with more buyers in the room, the competition is likely to intensify. Not knowing the sale expectations also means that buyers often come to auctions thinking about the most they can afford to pay, rather than how low they can negotiate.

• There’s potential for a bidding war: Depending on the market and the property, a house may attract several competitive buyers trying to outbid each other. This can drive up the sale price above the property’s market value. Increased competition isn’t always the case, but when it happens, you can reap big rewards. Plus, if buyers anticipate fierce competition on auction day, they might even make a pre-auction offer: you can either accept the offer and cancel the auction, or bring it forward and use the offer as the reserve price.

• A passed-in property isn’t the end: Even if the reserve price isn’t met and the property doesn’t sell at auction, you still have options. Usually, the highest bidder has the first right to negotiate, but you aren’t bound to sell to them. Your real estate agent will outline possible next steps, including contacting other registered buyers, re-marketing the property, or choosing a different sale method.

Auctions come with many benefits, but they may not be for every seller. Here are some potential drawbacks to be aware of.

• Auctions can rule out potential buyers: Buyers who aren’t able to secure finance by auction day may be forced to step out, which can reduce the number of bidders and limit the sale price. Plus, some buyers are intimidated by the competitive nature and simply avoid auctions if possible.

• You may not get the highest price: While you can set the minimum price, you can never be sure how high bidders will be willing to go. The bidding war might not actually happen, and the final sale price could be lower than what could be negotiated in the open market. If you’re selling your property to fund the next purchase, you won’t know your exact budget until the auction is over.

• There’s no guarantee of sale: The reserve is not always met. And if bids don’t reach the reserve price, the property can either be ‘passed in’ or withdrawn from the market. This can be a problem if you’re planning to sell the property by a specific date. Also, it may affect the appeal of the property: with potential buyers now knowing how much others are willing to pay, they might revoke or reduce their offers.

• It can be difficult to choose the right reserve: If the reserve price is set too low, you risk selling the property too cheaply. On the other hand, if the reserve is too high, the property may not sell on auction day.

• You can’t change your mind afterward: Once the auction is closed, the sale is final for both buyers and the seller. So, even if the sale price is lower than you hoped for, or your personal circumstances change, you can’t cancel the sale-and-purchase agreement. It’s crucial that if you opt for this fast-paced process you’re certain that you want to, and can, sell.

As we’ve seen, there are many factors to consider, and these also include the type of property, market conditions, and your timeframe.

Talk to your real estate agent about which method of sale is right for you. And of course, it’s important not to underestimate the power of good marketing. Once the auction date is locked in place, a premium marketing campaign can help maximise the appeal of your listing, getting more buyers in the auction room.