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Why Many Auction Campaigns Are Doomed to Fail

Why Many Auction Campaigns Are Doomed to Fail
September 30, 2016 Edwin Almeida
why many auction campaigns are doomed to fail

Why Many Auction Campaigns Are Doomed to Fail

Unlawful and unethical marketing strategies, which are at the heart of a large percentage of auction campaigns; will be the demise for many vendors. A failure for vendors and a bigger failure for the real estate industry.

No price-guide. Is it the new under-quoting?

Ignorance or blatant disregard?

To begin, when agents seemingly: don’t understand nor can confidently form an opinion about property prices, they should seriously get out of the industry and go back to selling cars.

Pushing vendors for an auction campaign and all because agents fail to understand the dynamics of real estate and appraising property; is not the method to achieve the best outcomes. Confusion and misdirection does not lead to clarity.

In my many dealings with local agents, I have found that many agents; not only, not understand how to appraise property, they also don’t understand property marketing 101. Both essential in the process to achieve the best result for vendors.

The video below was shared in 2011, to highlight the basics of preparing and marketing a property for-sale.

For many, the quickest and easiest method is to “take the property to auction.” Real estate agents see this as the fail-safe method. The good old, “I can’t be blamed for the low price – its market forces…” excuse.

In my opinion, achieving the best outcomes for the vendor is not about; speed of sale nor how easy it would be for the agent to manage the sale.

The above therefore translates to being a major issue for vendors. My reasoning will be summed up in this article, and under the following four points.

Why so many agents push for auction campaigns

    1. When many agents push for “auction campaigns.” What do they really want to achieve?
      • Tie-up the vendor and have them commit to accept a price on the day. All due to the vendor’s large expenditure in their auction marketing campaign.
      • They don’t want to work for the vendor for long and rightfully earn the commission.
      • There is a belief that when a property is auctioned off; the market dictates the best price on the day. This, in turn, forces the vendor to accept anything on the day. Even if it is below what buyers were willing to pay. See tweets by @REshortsell

  1. Agents have in the past, purposely and will continue to under-quote the property to draw a crowd. To the vendor this appears as;
    • A good turnout. Therefore, whatever the final bid is, determines the so called value of the property on the day.
  2. Agents have purposely under-quoted to draw a crowd, and to the buyer this appears as;
    • A need to bid and bid emotionally, due to an overwhelming fear of missing out on the property. Thus creating, the control needed for the agent to show the vendor the bidder’s participation; to give the illusion of success.
  3. Agents want a quick turnaround and a quick commission fix.
    • Auction campaigns run for four weeks and the agents are guaranteed a commission at the end with great certainty. This is all due to the pressure placed on the vendor, as noted above. Pressure also added by the large marketing fees paid to run the auction campaign.

Now to the nut-and-bolts: Why this article? Why today?

I attended an auction on Saturday, 17 September, in Parramatta. This auction was one promoted by a local, prominent and brand-name agency. What I was witness to, will make Fair Trading NSW take special notice.

I will detail the conversations and the agent’s arrogance below. One may also note, his ignorance or even deliberate arrogance in regards to the auction process.

Conversation with the listing agent: words to the effect;

Me: Do you mind telling me the price-guide?

Agent: I can’t disclose the price-guide because the vendor won’t allow me to.

Me: If you can’t disclose the guide, then what is your opinion of value of the property?

Agent: I can’t say as there are no comparable sales in the area. [Keep in mind; this is advertised as two bedroom penthouse unit in Parramatta with a large balcony]

Me: Really, no comparable sales?  Couldn’t you base it on square meters, location and perhaps aesthetic value?

Agent: No! There are no comparable sales and I don’t know what it would sell for. [I heard something similar with respect to well documented auctions at Millers Point…]

Me: In the agency agreement; you must have given the vendor a price-guide, right?

Agent: Yes, we have to [by law].

Me: So, you must, as an agent, be able to form an opinion of the value of the property; I’m not going to hold you to it.

Agent: I don’t have to disclose what I gave to the vendor to you. And besides, there are no comparable sales. If you wanted a price-guide, you should have called me before the auction.

Me: I did call you twice; you told me the new legislation doesn’t allow real estate agents to give price-guides. Why is that?

Agent: It’s against the law and Fair Trading NSW guide lines tells us not to give guides.

Me: Is that so… But you gave the vendor a guide right? Can you show me the agency agreement, or tell me what you wrote on it?

Agent: No, I don’t have to show it to you.

The agent turns away and focuses on other potential, interested and registered bidders.

Buyer: Will the building next to this one, block out the view, when it is completed?

Agent: No it is against the law to block out the views, that’s why they are building it in two sections.

I smiled and shook my head as I walked away in total disbelief of: the conversation I just had and the one I overheard. A conversation not dissimilar to the one’s where agents “spruikers” tell investors that they have insurance cover for 7 years, in high-rise apartment blocks. And pigs fly…

The outcome:

There was a crowd of approximately 26 people. The opening bid was $850,000. Subsequently, the property was passed in at $860,000 with only one bidder; whom strangely bid against himself.

Overhearing the agent’s discussions with both the vendor’s representative and bidder at the time; we found out:

  1. The reserve had been set at $950,000 by the vendor and on the day.
  2. The agent’s sale expectations was closer to the $1,000,000 + due to other sales.
  3. The agent also miraculously, appeared to know (had a revelation one might say) what other similar units in the area were being sold for.

Surprise, surprise. It appears the agent did give the vendor an estimated value of the property. One that was a lot higher than what it was passed in at.

For now we are noticing more and more; agents like this one, hide behind their misinterpretation of the FT NSW guide lines and what the guide lines were purposed for.

Furthermore, when more and more buyers are educated to counter the foolish, unethical and illegal tactics used by agents in their auction campaigns; buyers gain the advantage. Agents in turn, place their vendors at a high risk of losing $10’s if not $100’s of thousands of dollars.

Foolishly, both the agent and auctioneer, further allowed the property to be passed in at a low price. A price lower than the reserve. No vendor-bid was given, to help in maintaining a better chance of achieving the desired result, when the sale reverts to a private-treaty sale.

Why did they get a low offer in the first instance? This was all because the agent wanted to draw a crowd. No price-guide is the new under-quoting.

Well, in this auction, the “dumb and dumber” tactics backfired and more will continue to fail like this auction campaign.  Perhaps it’s time vendors made agents more accountable, particularly when they are charged high marketing fees.

Nonetheless, the losers in all this and like many other auctions, are the vendors. The vendor placed his trust in a professional that would guide them on the best method of sale.

The agent failed to both: to provide the best service to the client and present an ethical marketing campaign to engage the consumers (the buyers). Buyers want transparency, not the smoke and mirrors approach adopted by foolish agents.

Not quoting a price guide and going to auction with so many other comparable properties on the market, was a recipe for failure.

The campaign failed: it did however, draw a very large crowd but a crowd that was not willing to play the agent’s game. They could see right through the unethical conduct of the agent.

In this case, I am familiar with the vendors. I know for a fact they would not be bullied by the agent into accepting a lower than anticipated [quoted] price.

Reasons for marketing property by an auction campaign

The main principles for taking property for auction resound so clearly, as I write this article and sip down to the end of my coffee.

  1. Uniqueness (truly no comparable sales).
  2. Motivation:
    • Forced sale by court order.
    • Quick and urgent sale for personal reasons.
    • Time constraint.
  3. Development potential: building or land.
  4. An unfinished project even.

Now there are many more, however, the above is a good beginner’s guide. For the same reasons above, there are also alternate methods of sale and ones that can achieve a better outcome. This is a better outcome in relation to both the price and the way the sales process is handled.

George Rousos: Real estate trainer, course developer and compliance coach at Industry Training Consultants, shares an alternate approach to a public auctions.

Public Auction Method (flaws) Silent Auction Method (no flaws)
Real estate agents are not compelled to qualify the buyers first, to avoid a property being passed in All buyers are qualified first under private treaty
Upfront fees for vendor paid advertising No fees are paid for vendor paid advertising
Upfront fees for an auctioneer No auctioneer – therefore no cost to the vendor
No pre-determined increments are set to avoid non-genuine bidding on the day Pre-determined bidding increments are set to avoid non-genuine written bids
Bidding wars are generated which can cause animosity amongst buyers No bidding war between registered bidders. All bids are written on sheets of paper stuck to the table – with bidding rounds
The fall of the hammer doesn’t form a contract at law, as the sale of land is governed by contract law and property law (not agent law) Not legally binding method, but in the event the sale doesn’t proceed to settlement, all parties are invited to participate again
Unnecessarily open to the public Only those registered to bid attend the auction

My tip for real estate agents

If in total doubt and a value can’t be determined to be within the guide lines set out by FT NSW; call a licensed valuer. A licensed valuer can assist agents that have issues with forming a realistic price-guide.

Transparency is what buyers are looking for. If some agents believe they can fool buyers; think again. Buyers more than ever, are equipped with tools to help determine price values. In some areas, buyers are also contracting the services of “buyers advocates” to assist them.

However, it must be said that some agents just don’t believe they need, nor want professional help. Some simply feel they are above the law and protected by their real estate office-brand.

Some real estate agents simply run; on an overdose of “auction and how to crunch the vendor” seminars.

 

Edwin Almeida is licensee in charge of Just Think Real Estate.

He is also the creator of Oz Real Estate.TV and a presenter for propertyinvestingvault.com

This article was first published here.

 

 

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    The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of REALas.