True value of market in auctions

True value of market in auctions

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Auctioneers believe the open bidding process at auctions creates a transparent environment where buyers and sellers can duke it out in a democratic free market way that will ultimately provide a realistic price.

Domain group senior economist Dr Andrew Wilson said auctions are favourable in the current market because the power is in the hands of the seller. However, as the market begins to moderate, the power will swing back into the hands of buyers.

“The rate and price of houses selling at auction gives clear weekly insight into the housing market rather than having to work through private sales date,” Mr Wilson said.

“There are a lot of theatrics at auctions and there is no collusion between bidders to keep the price down – the seller has paid for an auction campaign so they are under pressure and buyers are competing openly, with some deluded into thinking they can afford some properties, so theoretically an auction is a pure environment for creating price.

“The Reserve Bank did a research paper looking at the auction market against private sales because there is more transparency in matching buyers to sellers and it proposed auction sales are a better indication of true market outcomes – it’s a more pointed exercise in finding a sale price.”

Hodges real estate auctioneer Jason Swift said the beauty of an auction is it gives the auctioneer a chance to look a vendor and potential buyer in the eye and say a sale at auction is dependent on the motivation of the vendor, and the only way to get more money is to wait for another day or a better market.

“Three weeks ago a property had two people bidding on it and it pulled in at $460,000. The vendor wanted $490,000, we had 67 groups through the inspection and all I could do was suggest meeting the market, but should they want to hang on, do so,” Mr Swift said.

“We are just the conduit, we report and they decide, and the only real way to get more money is if someone has no idea about the local real estate market, which happens to me about once every six months, and usually they are from overseas.

“I was at a property recently and actually had to say to the vendors ‘Just let us do our jobs and you will get a cracking result’. And if a vendor says to come down $100,000, I’ll say go down $200,000 and make yourself feel very bad – auctions are great because they are dependent on the motivation of the vendor.”

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