When Andrew Drane began his Harcourts agency in Baulkham Hills in north west Sydney, private treaty sales were the norm. Here he reveals how he established a viable auction business in the area
THESE DAYS, 80 per cent of my agency’s sales are auction-based. But that wasn’t always the case. When I started here five years ago, the only way to sell a property was by private treaty, as it is in many places.
The first hurdle is the most fundamental of all – cost. Owners often believe that auctions cost money and private treaty doesn’t. The answer is results. The secret is to connect the vendor’s current state of affairs with their desired future. That bridge is all about marketing.
Marketing costs, of course. But as vendors come to see the connection between professional marketing and getting the price they want, one of the chief objections to the auction melts away. The difference in cost compared to a private treaty campaign should be the cost of the auctioneer, which is between $330 and $550, and a few thousand to invest in a marketing campaign that might mean tens of thousands when it’s complete.
The other fear vendors have is removal of the illusory ‘safety net’ of private treaty. Our job is to convince them that private treaty is, in fact, as arbitrary as any other method. It relies on the negotiation skills of an agent, and it all happens behind closed doors. I know agents out there are instructed to ‘just go and sell it’. The reason I like the auction process is because negotiations are out in the open. Our vendors are watching us, in public. You can’t hide anything. They have their reserve price, and it protects them, but we’re showing the vendor that we’re walking around and talking to buyers, working hard for them. Buyers see that, too.
Once you dispense with the idea of private treaty, vendors not used to the auction practice worry about the house not selling on auction day. The objections are often the same. ‘What if there are no bidders? After all, there’s no price advertised’.
As I write in my new book Real Estate For Real Reasons, the listing presentation is an incredibly important part of the process of gaining vendor confidence and trust. If they are impressed by your analytical skills, market knowledge, desire to work hard on their behalf, communication skills and ability to gain the optimum price for their property, then you will get the listing.
Our challenge is to convince vendors that the auction is a proactive method of marketing their property, whereby we remove the price of the home, but we focus on the merits of the home and the property–its features and benefits. The way we do that is with an absolutely professional marketing campaign, using all available and effective media: online, newspapers, glossy brochures, well-produced videos.
It is absolutely vital for the agent, whose main ‘modus operandi’ is the auction, that they become expert marketers, and this is something a lot of agents haven’t mastered. An auction highlights that point of difference and enables us to showcase it.
Even when I sell via private treaty, I still encourage vendors to invest in marketing. After all, why wouldn’t they? The difference can be tens of thousands of dollars to the price of their property. I speak to them about the importance of their biggest asset, which is way too big to justify cutting corners just for a bit of short-term ‘saving’.
A presentation is part education. We highlight the major difference between auction and private treaty; private treaty makes people react to price, and in most cases, agents get the price wrong. Everyone has their own opinion on what a house is worth, based on comparative sales. They might merely like something about the house that someone else doesn’t. My challenge here has been to remove the illusion that private treaty sales have a sort of scientific exactitude.
Once we’ve succeeded in doing so, we show the vendor how we build up excitement and create competition, netting them the best possible price.
To create an auction ‘culture’ in an area, an agent needs to believe in the auction process; to be confident of the infectious quality of the auction and the way it raises awareness by marketing themselves, their methods and their successes, using a variety of media. The inherent marketing potential is enormous.
TAKING THE FIRST STEP
Keeping the above in mind, all I can do is convince those agents contemplating switching to the auction process that it begins with the first step.
We took it step-by-step. One house at a time. The one advantage you will have is that you can video an auction and market the video. You can’t video a private treaty sale. An auction video is dynamic – you can put it on You Tube, or on your marketing database. This makes it easier to convince vendors you meet subsequently, of the merits of the auction.
The big advantage I had in building up acceptance of the auction process was the fact that I was the auctioneer. Having an in-house auctioneer has been a major point of difference. As a listing agent and principal of the office, I know all about the property prior to auction. I don’t go in there blind. This has been a powerful method of building the auction culture, because it has a lot to do with vendor comfort. A lot of people have said they have liked dealing with the guy who’s involved in the agency, the listing and the auction.
The most successful case we had in the early days was a vendor who was totally sold on private treaty. It was a full-brick home, about [557 square metres]. It was somewhat dated, but had distant views to the city. A lot of agents went out there, and it was agreed that an acceptable price was low $800,000 to $840,000 or $850,000. But, really, no one knew how to price it. If we went too high it could potentially alienate buyers, which is the worst thing you can do. We would then have to adjust the price downwards. And once that happens, if you haven’t sold it in that four to six week period, the house is stale. It has that ‘market rejected’ tag.
An auction campaign is designed to last four weeks – long enough to hold people’s attention. It creates a deadline.
With this particular sale, we convinced the vendors that there would be buyers for their property; the key was to remove the price and get them to come in and see what you’ve got. We got nine or 10 bidders on the front lawn, and in the end we had two bidders fighting it out. We ended up selling it for $956,000 – $126,000 above the reserve price.
On every level – ethically, rationally, economically – I believe the auction was the best way to market that property. Always remember with an auction, you let the market determine the value. Real market forces are in action.
The reason we created the ‘auction culture’ is because we believe, when agents determine what the property is worth, they often get it wrong.
I’ve seen houses come on the market for less than they’re worth, agencies get 60 people through the open home, the agent sells it on the first day and boasts about it. But it might have been undersold.
The worst thing that can happen with an auction is that the vendor gets four weeks of marketing, and a very good idea of its price. In the unlikely event that it’s not sold, everyone knows exactly what the price is.
There are those who say the auction process won’t work everywhere. Ultimately, you need to gear your business toward one method or the other.
I identified very early that the auction process is very intense. We have one person in our business unit who just deals with getting buyers to auction. They trust him. First home buyers are a bit more reluctant, of course, but we get them to auction as well. It’s catching on!
There will probably always be private treaty sales, but for those who are contemplating a switch to auctions, the ‘auction philosophy’ needs to supplant the private treaty way of thinking. It’s not that they cannot co-exist, but it’s almost impossible for an agency to have both as a fundamental way of doing things.