AUCTION vs AGENT
AN OVERVIEW OF THE SITUATION
Auctions have been around for many years and whereas they traditionally were used as a mechanism for selling “forced sale” properties, such as repossessions, estates etc, auctioneers have moved more and more into the normal sales market with varying success.
Especially in tough economic times, when properties take longer to move, some people, not surprisingly, are wondering whether the auction route is perhaps not best for their given circumstances
If you opt for an auctioneer, you can expect your house to be advertised a few times and perhaps have a big billboard fixed to the wall notifying potential buyers. When auction day comes, you can expect a handful of buyers with cash or access to money eager to bid on your house. Within weeks of putting your property on the market, it could be sold. At least, that's the sales pitch.
They key term of course is “could be sold”, but how is that different to normal marketing?
Here are however a few simple truths regarding the auction market in South Africa
- Most residential properties in the mid- to upper market don't meet their reserve price
- The high number of bank repossessed or ‘distressed' homes being put on auction creates the public perception there are bargains to be had at knock-down prices – whether it is true or not an auction sign is a sign that the seller is desperate.
- Auctioneers charge commission to the buyer and in most cases the seller pays the marketing costs. Commission is usually in the region of 10% - far higher than the fees charged by estate agents.
Auctioneers have been claiming that they are gaining market share from estate agencies during the last three years and particularly 2008/2009, but considering the tough economic times, it is only logical to link this growth to the increase amount of repossessions that have taken place. It is highly questionable therefore whether real market share has been gained or they have simply benefited from the economic crisis of others.
Additionally, even Banks, who have always chosen the auction route for distressed properties, are now realising the financial benefit of proper marketing and opting to use the normal agent route for these properties.
It is said that the market will always determine who is best in the long term. That being true, then the market has voted overwhelmingly in favour of agents. Professional real estate agents do by far the bulk of property sales with auctions coming a dismal second and so far behind it is not even worth mentioning. People have chosen based on decades of experience and knowledge.
But there is obviously place for both in the market place and rather than compete the two elements must find a professional way of using both selling techniques to the sellers ultimate benefit. It is for this reason that Property Network has built strong links with selected auctioneers. This means we can offer our clients the best of both worlds – all in house.
A SUMMARY OF COMPARATIVE POINTS
| Auctioneers | Estate agents |
| Buyer pays commission | Seller pays commission |
| Standard commission: 10% plus VAT | Standard commission: 5.0-7.0% plus VAT |
| Sales deadline. It is common knowledge that the best deals take place within the first 30 days. Unsold auction properties are killed in the market, creating a problem for the seller going forward | All agents target a quick sale period but take into account the possibility of a longer selling period based on a marketing strategy which carefully considers the current market, area and so on. |
| Seller dictates sales conditions – but there is no room for negotiation so often sales are lost | Seller determines initial conditions and there is room for negotiation to make sure the sale happens |
| Cash buyers; qualified buyers | In days gone by, sellers had to wait for bond approval but in these times, agents have their buyers pre-qualified which in effect is the same as a cash buyer |
| Prices are negotiated up from a ridiculously low base | Prices are negotiated around market value |
| More desperate sellers – attracts bargain hunters | Fewer desperate sellers – attracts serious buyers |
| Price isn't advertised – this in effect means a hoard of useless bidders “just looking” | Price is advertised – serious buyers in the price range can begin serious offers |
| Auctioneers argue they spend more money advertising properties | Advertising is only one form of marketing. It is the combination of advertising, research time, working within networks and one on one time with buyers that gets a property sold effectively. |
| Auctions can allow for “unique value” on properties that are extremely rare | Professional agents work through established networks and are often already in touch with the type of buyer that is looking for a particular type of property. This is confirmed if one looks at highest sales values of residential properties achieved in SA. They are through agents not auctions. |
| Auctions can draw large crowds. | So do accidents. Most however can offer no assistance to the injured. Similarly, auction crowds consist so many times just of spectators. Professional agents will not waste a sellers time with pointless inquiries or even brag about how many useless inquiries they had. |
| Auctions only allow for "cash" buyers and therefore disqualify many buyers who would easily have got a bond | All buyers can participate in putting in offers on your home, as they have time to apply for a bond. |
| Use of ghost bidders on the increase. This unethical practice of using accomplice bidders that are not real buyers, in order to push the price up is used far too often. Many times backfiring, as they create a false excitement beyond the pace of normal buyers therefore cutting out many bidders who would remain in the bidding normally. | Buyers brought by agents are mostly pre-qualified financially and are genuinely in the market. |
| You MUST accept the best offer if your reserve price is reached. There is no room for consideration. | A seller does not have to accept any offers - even of they are at marketed price. Seller has the choice of opting out or reconsidering. |
| Price determined largely by circumstance. Auction properties are by and large distress sales – financial difficulty, divorce, death etc | Pricing is determined by conducting a professional Comparative Market Analysis, drawing upon peer knowledge and expertise and an area and situational review. |
| You pay FULL costs even if the property is not sold. | You pay only if the agent concludes a successful sale that you accept |
CLIENTS FINAL DECISION
The final decision on how their property must be marketed rests with the client - it is their home and their prerogative. Our role is to assist you, the seller in achieving your goals and advising you along the way. If you feel you would like to take another look at the auction option then contact us and we will arrange for a full consultation.
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Read more on Why to Use Property Network
Read more on Open Mandates or MLS Mandates
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