If you’re an Eastern states investor, you’d be forgiven for thinking most properties are sold at auction. Yet, that’s far from the truth.
Two of the nation’s fastest growing markets – Adelaide and Perth – don’t “do” auctions.
In the last week of September, for example, there were just three auctions in the whole of Western Australia. Hobart had only three auctions that weekend, too.
In South Australia, you’d be lucky to see 100 auctions during a spring selling weekend. And even in Queensland, auctions represent maybe 20% of all transactions.
It’s a fascinating phenomenon that Victoria and NSW are so bolted-on when it comes to selling homes at auction.
The logic seems bullet-proof: you bring all the prospective buyers together in one spot and let them battle it out. The philosophy is simple: encourage competition. Ultimately, the market decides.
A good auction clearance rate is 70%-plus, and we’ve been seeing the market hover around 75% for the past couple of months. Most homes that don’t sell at auction are often purchased within a week, often to the highest bidder at the auction.
Selling by private treaty – the alternative to the auction process – is less combative by design but does not stop prospective buyers bidding against each other, all orchestrated by the selling agent.
Across Australia, we’re now seeing the growing popularity of silent auctions in which prospective buyers submit their best offer by a set deadline. No one sees anyone else’s bid, and the highest offer wins (so long as it’s acceptable to the seller).
Here are the key differences between a silent auction and a traditional auction:
No strategy – If you’re a buyer at a traditional auction, you can see how others behave and adapt your strategy accordingly. Experienced bidders will sometimes bid high to get ascendency while others demand small increment bidding to throw rivals off their stride. A silent auction offers no such opportunities.
Paying too much – In a silent auction, you’ll never know if you won by $5 or a $100,000 margin. You must trust your judgment when it comes to the market value, and your assessment of what others might offer.
One chance – In a strong market, the appeal of a silent auction is the opportunity to feed off buyers’ FOMO (Fear Of Missing Out) and lure them into paying too much. Why would they do that? Simply because they will assume other buyers are putting in strong bids.
Faster deals – On the basis the seller receives acceptable offers in a silent auction, the whole process moves a lot faster. With traditional auctions, 25%-30% of properties are passed in, so the deal can drag on for a few frustrating days or longer.
Is this a fad? – It’s difficult to say whether silent auctions will become a mainstream way of selling a home. The strategy has been popping up in every metro market increasingly. Buyers can either take their chances or move on to the next property. In the right circumstances, most sales agents will talk through a silent auction strategy with their clients.