How to attract buyers
A major selling principle
One major principle used to achieve success in selling, is to make buying easy for the paying customer. Retail shops understand this principle well, which is why they offer so many different payment options to their customers. Whether it be cash, credit card, EFTPOS, lay by, in store credit or even a No Deposit Interest Free loan, smart retailers know that you need to engage your customers in order to make that sale.
Car yards will also offer a variety of payment options to potential purchasers in order to secure a sale.
Yet when it comes to selling property, real estate agents still push the most cumbersome and awkward selling method possible onto vendors, as their most preferred method of sale to engage buyers. That selling method is called ‘auction.’
Most buyers lose money at auctions
In order to bid at an auction, a buyer will normally have spent thousands of dollars preparing themselves for the auction, without any guarantee or certainty of being the winning bidder. Buyers need to spend so much in advance because a sale at auction is unconditional upon the fall of the hammer. Because the contract is unconditional, buyers therefore need to ensure that the pest inspection, building inspection, bank valuation and any other due diligence has all been completed prior to the auction. The contract needs to be negotiated by the potential buyer’s legal representative too.
All this due diligence prior to bidding at an auction can easily cost a genuine buyer between $2,000 and $3,000. If you are the winning bidder at an auction, all the money spent on due diligence is money well spent. For all the under bidders though, that few thousand dollars is money which is gone forever. Unless you are an investor, this money is not tax deductable either.
Whenever you watch an auction with four or more bidders, you are probably witnessing $10,000 or more evaporate in wasted due diligence amongst the under bidders.
The real cost to vendors
As a vendor who may be considering selling a property by auction, on the surface, you may not think that this wastage is any concern of yours. However, due to the expensive and cumbersome nature of the auction process, many buyers simply refuse to spend money upfront just to have an opportunity to bid. This is particularly so if the agents have been using bait (low) prices to attract more bidders to the auction. Now that dummy bidding has been outlawed, bait pricing is rampant as agents try to attract lots of bidders on the day to fuel the auction.
Due to this deceptive conduct by agents, genuine buyers often bypass the auction process along with any properties listed for auction. When searching for a new home, bidding and missing out at one auction is disappointing. Missing out at two or three auctions after having spent thousands of dollars on each property in the process is madness. This is why many genuine buyers refuse to buy at auction.
When a vendor chooses to sell by auction, what they are really doing is limiting the potential market for their property. This is one of the main reasons approximately half the homes listed for sale by auction, fail to sell at the auction.
First home buyers and investors are two categories of buyers which are most likely to avoid properties listed for auction. Generally speaking, first home buyers don’t have excess funds available to spend on due diligence and investors are far less emotional than genuine home buyers. This makes them happy to wait for a property to come onto the market that can be negotiated without risking $3,000 on due diligence. Investors buy properties to make money. They are not in the business of spending money on potentially fruitless checks and searches.
A soft market
Apartments, along with most properties in soft markets, often struggle to attract sufficient buyers to an auction. Research shows that over eighty percent (80%) of all apartments sell by negotiation. Apartments are more readily available than houses and offer more generic features and benefits to buyers. Therefore buyers are more likely to wait for the next apartment to come onto the market, rather than gamble $3,000 on bidding at an auction.
In soft markets, buyers are faced with excess stock and less buyer competition. In a soft market, buyers commonly ask the agent if the property has been to auction in the past and how much the property was passed in for at the auction. These types of buyers are looking for post auction sales not pre auction sales. There is a big difference. Many types of buyers don’t feel the need to pre spend thousands of dollars in order to bid at an auction in a soft market when the clearance rates suggest it will be passed in anyway.
The real cost of a lost bidder
Given that a major principle used to achieve success in selling is to make it easy for a customer to buy, it may be worth asking yourself ‘is it worth alienating my best buyer by selling through the auction process?’ If the best buyer for your property refuses to participate in the auction process, then what is the real cost of that lost bidder to you?
This is a question which would not need to be asked if you avoid auctions.