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Property Auction & Why You Should Run A Mile From Them
That's A Funny Thing To Say About Property Auctions; They're All The "RAGE, Aren't They?"
From The Desk Of Colm Dillon
Hello Colm here ...
So why would I make such a comment like that; I mean, they're happening everywhere, aren't they?. They're even on TV. property auction,
So let's go back a bit. Can you remember back to when they were a rare happening. Some big house owned by the local rich family or the farm or antiques; that kind of thing. property auction,
Now it seems to be just about every three-bedroom homeowner is being convinced to sell that way. property auction,
So let's look at what or who has driven this upsurge, and why they would have done it? property auction,
I like to go back to basics and ask the Question; Who Benefits? Because whoever benefits, you can bet they're the ones driving the "A" truck, and are trying to get us all up on the tray property auction,
It's the media barons folks ? the major newspaper and TV owners have convinced the Real Estate Agents to push you into auctions, because it generates BIG ADVERTISING REVENUE. property auction,
Newspapers don't make money out of the news. The NEWS is only the reason they can sell advertising and it is from advertising that they make a profit. property auction,
The Real Estate bosses have fallen for their line hook line and sinker. Agents have become advertising salespeople for the newspapers. property auction,
So why does the big "A" appeal to the big real estate bosses? property auction,
1. It brings a sale process to an end with a definite date ? the "A" date. property auction,
2. The agent doesn't have to commit to an achievable sale price. property auction,
3. The normal sale process is hard work requiring a higher skill level. property auction,
4. The client pays all the advertising up front.
5. Advertising makes the Agency look big and successful, but with Client's Money. property auction,
6. All the pressure is put on the client to sell. property auction,
7. Failed auctions don't get advertised in the mediaproperty auction,
8. They earn commission from the newspapers for selling advertising for them. property auction,
It brings a sale process to an end with a definite date ? the "A" date. property auction,
It sells or it doesn't sell! Accordingly it's relatively easy for the agency boss to estimate his income from a regular flow of auctions. property auction,
Private Treaty sales require individual inspections and negotiations and an end date is not easy to determine. property auction,
The agent doesn't have to commit to an achievable sale price. property auction,
At the auction sales presentation, you the owner, would like to know 'What Price" you will get for your property. property auction,
The answer is always,'THE MARKET.' And of course, so the story goes, THE MARKET will usually recover the advertising expenses you must pay up front; especially for a beautiful house like yours. property auction,
The normal sale process is hard work requiring a higher skill level. property auction, The agent, therefore, does not have to give you a possible range, within which your achievable price will fall. By definition this allows the agency to employ people with high sell 'the auction' ability but reduced real estate experience. property auction,
The client pays all the advertising up front. property auction,
OH, did I mention that you now have to part with a Substantial Cheque of many thousands of dollars in order to promote your property. You will be presented with a well-prepared advertising campaign. Your only choice will be the 'pink one' or the 'yellow one.' property auction,
That is the $7,000 one or the vastly superior $11,000 one. If your house is a high price ticket, you can double these costs. property auction,
Advertising makes the Agency look big and successful, but with Client's Money. property auction,
OK, the campaign is off and running and you first advert appears in the Color Pages. Yes it is small, isn't it? As a matter of fact the most dominant FEATURE on the page is the AGENCY'S NAME. Then, of course, we have the sales person's photo, perpetuating the 'cult of personality.' property auction,
Oh yes, then there is the picture of your house and a few lines of description in typeface you can just read. 'Umm,' you think, 'maybe I should have gone for the bigger size ad. property auction,
Let's move on to the day just before the auction, and when all your money has been spent. The agent and the auctioneer visit you and tell you that there has been a good response to the advertising. Of course, you don't have a clue what quantifies as a 'good response.'
'We need to establish a Reserve Price" they continue. As someone once said, 'please explain?'
Oh, it's the minimum price you would accept! 'But.' you say, 'I didn't go to auction to get the MINIMUM PRICE, I want the MAXIMUM PRICE; what's this minimum price business?'
'Well,' says the auction agent, 'now that we have completed this big campaign for you,' they continue, 'you want a result don't you, so let's not send the people who turn up get away.' 'No,' you should reply, 'I don't want any result, I want the best price plus my advertising cost back.' Question! How well do you sleep that night?
All the pressure is put on the client to sell.
Let's skip now to the BIG DAY, and ask the question, "who is under the greatest pressure, you or the agent? I THINK IT 'S YOU!
How many will turn up? Will they be 'Tyre Kickers & Sticky Beaks'? I've just spent thousands of dollars to get to this point. Boy I hope we sell, and MOST IMPORTANTLY, sell at a great price. A price that will beat the price I could get just selling it normally + my advertising costs.
Let's just say that the ideal prices for your home is $550,000.00, OK!
In the crowd there are a number of genuine buyers, whose profile range from:
* Investors (who want to steal your property for a low price, say $100,000 under)
* Normal home buyers (who will pay a fair price, say $520,000.00)
* And finally there is one 'heart' buyer who will pay up to $580,000.00).
Once the auction starts it is easy to see how the investors get knocked out of the bidding, after all they are only there to grab a bargain when an auction fails and the seller is desperate. But they do get the ball rolling.
Next the bidding stops at $520,000.00 where the normal buyer has reached their limit. They get knocked out as soon as the Heart buyer goes another $5,000.00.
So your house is now at a bid of $525,000.00 with no other bidders to get it up to the possible top bid of $580,000 which is the capacity of the person who last bid.
The auctioneer will now halt proceedings and have a private "pressure" chat with you. Now remember you do not know the highest bidder can go higher.
No matter what words come out of his mouth the essence will be,'the best bid I can get is $525,000.00 and no matter what I say I cannot get another bid. So do you want to sell at $525,000.00 or not?'
I did mention pressure earlier on. Are you beginning to feel it yet, after all, you have spent thousands of dollars, and now you are $25,000.00 under the price you wanted. If you say NO the audience walks, and you are left with a debt, and the hope of selling privately after the auction.
Failed auctions don't get advertised in the media.
Now comes the next problem. As an auction is such a PUBLIC event, all the agents and all the neighbors know at what price your auction failed. So I'm sorry but that failed price is now "THE PRICE" AND IT IS HARD TO GET PEOPLE TO PAY MUCH MORE AFTER AUCTION.
Ever notice how auctions that fail never seem to be newsworthy. Well, you see, it's bad for the organization that has a vested interest in promoting auctions. If you happen to own newspapers and a TV network you could always create a program and why not call it Auction.
Just like any soapy, before long all the people start to believe in auctions. They can even see themselves as being the person on TV. But folks we have to remember that it is ENTERTAINMENT.
They earn commission from the newspapers for selling advertising for them.
Remember I told you that the agents who promote auctions are really working for the newspapers, so naturally they're entitled to be paid? As a matter of fact their employers are so happy that they put on a big annual celebration black tie dinner.
And they give out prizes and plaques. So when you go into a big agency's office have a look at the plaques on the wall. "For the Agency that booked the biggest Dollar Value Advertising for the Month - Year; For the Agent within the Agency who booked the biggest Dollar Value Advertising for the Month - Year etc.
You bet, every little dedicated worker gets a prize. They unfortunately don't have a prize for the Agency that rebates the newspaper kick back commission to the vendor!
And so we end the sorry saga of:
Auctions & Why You Should Run a Mile From Them?
Are You Saying Auctions Should Never Be Used for Selling Property?
No. I am not saying that at all. If you have a unique property that has features that may only appeal to a limited number of people in your immediate market, then you should auction.
The vast majority of Aussie Home sellers can get a better and cost effective result from selling by normal Private Treaty method. Remember it is the Net Result after all costs that ends up in your pocket.
And I did mention the 'pressure' of the auction process and the 'public profile' of the failed price does not work in your favor.
PS: The correct way to sell your property is by Private Treaty with a knowledgeable real estate agent with whom you are comfortable and in whom you have confidence.
The Real Estate Development Coach
Copyright Colm Dillon, October 2003
Colm Dillonauthor of "Residential Development Made Easy" the only 'How To' Become a Developer eBook, selling in 38 Countries, has developed $1.2 Billion worth of real estate - read more on his web site http://realestatedevelopmentcoach.com/realestatedevelopment.html
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