The current market is one of the most challenging we have seen. Buyer numbers have thinned. Buyer confidence is at a record low.
Prices are falling and vendors are often struggling to understand the true value of their property.
Rising interest rates, falling borrowing capacity, high inflation, cost of living pressures, international oil price shocks and government tax tinkering have all played their part in creating the perfect storm for real estate markets in Australia.
So what do we need to do differently to run a successful auction process in the current market?
While some less experienced auction agents run for the hills and revert to private treaty when the market falls flat, seasoned auction agents understand that the benefits of an auction process matter more now than ever.
In slowing markets, the auction process allows us to identify the market without burning the market. This is crucial.
Entering the current market for sale with an ambitious asking price is a recipe for a long, slow, painful private treaty campaign that likely involves the vendor selling at a point at which their leverage is weakest.
Endless repricing and chasing the market down inevitably sees days on market blow out and the vendor very likely selling at a significant discount because their campaign is clinically dead by the time they have priced the property to sell.
The no asking price nature of an auction campaign allows us to attract interest in a property without having to declare the owner’s hope price. This enables us to gain market feedback, locate where the market sees value on a property and educate the vendor without deterring anyone from being involved.
This all typically happens within a 28 day period too, thus enabling faster alignment between buyers and sellers while giving ourselves a fighting chance at creating competition.
Auction success in a falling market boils down to doing the fundamentals well. The fundamentals don’t change, they just matter much more in markets like this.
Here’s three things you can do to maximise your chances of securing a successful sale in a timely manner using an auction process in the current market.
One: Price guiding and price conversations with buyers must show more value
Every buyer today is aware prices are falling. They are not only looking at what has sold recently but they are also reading and hearing about continuing price falls and they are factoring those future price falls into what they are willing to spend.
If you have a price guide or are having price conversations with buyers right now that do not represent value to those buyers, you simply won’t attract anyone willing to engage on the home.
The first goal of any campaign has to be to attract interest and engage buyers at a level at which they see value. So think carefully about price guides and pricing conversations right now.
Two: Educate vendors early on price
When markets fall this leaves many vendors expecting their home is worth more than it really is. Their minds remain on yesterday’s pricing and it can be a difficult journey coming to understand the price of today.
The earlier you educate your vendor and the earlier you bring their expectations into alignment with where buyers see value, the better equipped vendors will be to make a good decision when the right offer or bid comes forward.
One of the great challenges we are seeing currently is that when that crucial moment in a campaign arrives, whether that is a decent offer coming in or whether it’s seeing competitive bidding on auction day, many vendors are failing to understand the importance of that moment and are not making good decisions.
Early education on price ensures when this moment arrives, vendors are ready and equipped to make a good decision.
Three: Be more diligent with buyer qualification
Ask more questions. Probe a little deeper.
Excavate further to uncover the level of commitment and level of readiness of your potential buyers.
A good percentage of buyers in the current market are low intent buyers. They are not committed to buying right now.
They are circling, waiting and only acting if they see something that really represents value. These buyers are rarely the eventual buyer of your property.
Most campaigns are only attracting one committed buyer right now. That is the buyer most likely to take meaningful action to buy the home.
Leading into any negotiation situation, be it auction day or be it prior, it is important to know who’s who and to fully understand whether the buyers you have are committed or just curious. Too often right now we are seeing curious buyers being mistaken for committed buyers.
One last point I would like to emphasise is the difference between what buyers are comfortable to do in isolation vs what they are willing to do when confronted with competition.
A reoccurring theme we are seeing in the current market is where competition has been achieved on auction day, buyers are frequently bidding more than what they offered prior to the auction and more than what they were indicating prior to the auction.
What a buyer is comfortable to do in isolation is completely different to what they are willing to do when confronted with competition.
Realistically, competition isn’t being achieved on every campaign right now, but where it is being achieved, it is proving crucial to maximising price. Competition is the best defence right now to selling at a discount.
Regardless of market conditions, the leverage competition gives us remains the great superpower of the auction process.
By focussing on doing the fundamentals well you will maximise your chances of attracting competition and achieving auction success in the current market.