In order to persuade sellers to sign up to an auction, agents use the equivalent of the three-card trick (they call it a ‘three-phase selling process’). You can sell before the auction, at the auction or after the auction, they reassure you. If your home fails to sell at the auction, they will tell you it’s normal because failing to sell at auction is just ‘a part of the process of determining the market price’.
Phase 1 — Selling before the auction
Unfortunately, not much effort goes into trying to sell your home before an auction. If an enthusiastic buyer happens to inspect your property before the auction and wants to make an offer, there is a chance to secure a sale before the auction goes ahead. This doesn’t happen very often. Some agents may even advise the buyer to wait for the auction date. In general, agents don’t like selling beforehand because they get very little publicity from this kind of sale. They love to build their profiles through the auction process as often as possible. Be wary of the agent whose listings are loaded up with auction campaigns.
Phase 2 — Selling at the auction
In reality, the public auction system is all about forcing or conditioning the seller down to a price where the property sells within the shortest period of time. Behind closed doors in agent training meetings and seminars, agents refer to auctions as ‘the fastest and best conditioning tool’ they have at their disposal. The reason agents push auctions in weak or turbulent markets is because the transparent bidding process gives owners a ‘reality check’ if they need it. When the auction publicly stops below the reserve price, agents say: ‘It’s the buyers telling you your price expectation is too high, not me’. This takes the pressure off the agent and transfers it neatly to the seller. Often the agent’s real motive in selling an auction campaign to a vendor is to allow the auction process to push the vendor down in price so a quick and easy sale can be achieved. If you doubt this, ask the agent why all auctions start the bidding process below the reserve price. Less than 50 percent of auctions achieve the reserve price which causes the seller to either pass the property in or drop the reserve price during the auction.
Phase 3 — Selling after the auction
Any hope of achieving a high price for passed in properties is dashed as many buyers view properties that fail at auctions as damaged goods. After a home is passed in, the seller often reluctantly commits to selling their beloved home for a lower price post-auction. Unfortunately, only the agent and the buyer are happy.
When the seller refuses to believe what the auction process is telling them, a sale by private treaty is likely to occur a few weeks later at a higher price. If you sign up for an auction envisioning a big crowd of buyers in your backyard ferociously bidding to secure your home, that is your fantasy, not the agent’s. Your agent will have a different motive behind convincing you to go to auction. Instead of signing up for a successful selling campaign, you may have signed up for the classic three-card trick.