The truth revealed: What no Real Estate Agent wants to tell you about auctions

Auctions can be an entertaining spectacle to watch. Large groups of potential buyers vie for their chance to own their next dream home or investment property. Real estate agents love to soak up the atmosphere and put on a show when it comes to house auctions. It helps to create a sense of urgency that is usually encouraged to help make bids more competitive and drive up the sale price. 

When you see a house sell well above the market average it’s not always a good result for the seller. Sometimes the sale result of an auction can benefit the agent and the buyer more than the seller. If you’re still contemplating whether an auction is the best option for you, then read on. Here we will reveal some of the facts about auctions that real estate agents don’t want you to know

Hidden fees

One of the reasons why real estate agents often recommend an auction is because it counts as another service. This service can be another item they can charge you for when it comes to the total list of fees for selling your house. An auction also allows a real estate agent to jack up the price of their services thanks to the expenses that come with advertising and marketing a property for an auction. 

Another disadvantage of paying for an auction and its campaign is the result. What if your property gets passed in? When a property gets passed in that means it doesn’t get sold on auction day. This is a worst-case scenario for you. It means all the time, effort, and money invested in putting your property has gone to waste. What’s worse is that your real estate agent could recommend another go at hosting an auction. This could result in spending even more money on the selling campaign and blowing your budget way out.

Auctions can shorten your overall campaign

Compared to selling your property privately, a campaign for an auction is relatively shorter. Auctions force you to have a set deadline that the property needs to be sold by. With a private sale, you can put the house on the market for as long as you like until the right buyer comes along. 

Real estate agents prefer to do auctions because it speeds up the process for them getting their commission for the sale of your property. Instead of waiting up to six months for your house to sell privately, they could get it done in as little as two months with an auction. Even if your property gets passed in at auction, your real estate agent could end up pressuring one of the bidders to meet your reserve price just so they can get the property sold faster. 

Putting more pressure on you, the seller

Many property sellers don’t realise just how much pressure and stress is involved with an auction until the day it happens. Even though you come away with a high bidder, there’s still what can be a life-changing decision to make on the day of the auction. It’s not until you face that decision of accepting the bid that some sellers realise how stressful it can be. 

If the bidding doesn’t reach your desired reserve price on auction day, it’s up to you to decide what to do next. In this scenario, your real estate agent could urge you to accept a lower bid. They may tell you that the market has already spoken to convince you there’s no chance of getting a higher price. This places an incredible amount of pressure on you. All that time spent hosting inspections and investing in a marketing campaign comes down to this. Do you think you would be able to handle the pressure of this moment?

Buyers tend to dislike auctions 

No matter what your real estate agent tells you, Auctions aren’t every buyer’s preferred method of getting a property. Some genuinely believe a private sale is the best way to go. This general dislike of auctions can put off a lot of potential buyers who would have shown genuine interest in your property had it been up for private sale instead. One thing that really puts off buyers is the costs associated with inspections. 

Pest and building inspections are genuinely carried out by buyers when they are extremely confident in buying the house. Sometimes it’s the last hurdle before they decide to put in a bid on a property up for private sale. However, when it comes to auctions, buyers are less likely to organise an inspection of your house before auction day. They don’t want to risk spending over $1000 for a property they have no guarantee of getting. Without that confidence of a building and pest inspection, it can discourage a lot of potential buyers from bidding on auction day.

Agents will often underquote your property to attract more bidders

Real estate agents will always try and get a massive turnout for your auction. They want to build an atmosphere and hype around the occasion to help motivate genuine bidders to make a decision. In order to get numbers up on auction day, one method real estate agents try is underquoting your property. You may want a sale price of $900,000 but a real estate agent may have no shame in listing it for $750,000 with hopes of bidding competition pushing up the price. 

Unfortunately, this method of underquoting can backfire. Even with so many onlookers on auction day, you may only have three prospective buyers ready to put in bids. With a small number of genuine bidders, the price may not jump up as much as it needs to in order to meet your reserve. Sometimes this scenario can backfire in a different way. You may have a generous amount of bidders putting up their hands if they continue to put in small bids. But the price may never reach your reserve because the starting bid was so far behind in the first place. 

Auctions tend to achieve lower prices than private auctions

You’ve probably heard stories of properties selling well above the average market value on auction day. But that doesn’t mean it happens all the time. Depending on the state of the market, properties can sell lower than your reserve price at auction. One of the biggest disadvantages of an auction is having a reserve price. After the auctioneer announces the reserve price has been reached, it can instantly put bidders off and make some withdraw from the auction. Revealing this information can discourage bidders because they realise they could have gotten the house for a cheaper price. So why would they continue bidding?

Another disadvantage of revealing the reserve price has been reached is that potential buyers will start putting in smaller bids. When the reserve price has been reached they know they’re very close to putting in the winning bid. So chances are they won’t try and finish with a strong bid. At this stage of the auction, buyers will continue to put in smaller bids to wear out and frustrate the competition. So instead of bidding in $5,000 or $10,000 increments, they’ll settle for $1000 increments so they can inch in front of the competition and not go too high over the reserve.

Get more costly advice like this from a Vendor’s advocate

Curious to know how some of the most successful property sales happen? You may be surprised to learn that a lot of Vendors today use a vendor’s advocate. It’s a great way to keep your real estate agent in check and ensure you avoid a lot of the pitfalls that can come from choosing an auction as your preferred sale method. 

Talk to one of the experts at Vendor Advocate Melb today and see which property sale option is best for your property and personal circumstances. One of our Vendors can help gauge the local property market for you to ensure you and your real estate agent are making the best decision for your property sale.

Questions? Speak to one of our Vendor Advocates.