Hammering it home

‘Auctions will never work here’ is a common refrain among some agents based outside the under the hammer-friendly inner city regions of Sydney, Melbourne, and to an increasing extent, Brisbane. Yet, according to the auction-focused agents Real Estate Business spoke to, this shouldn’t be the case. And they have the evidence to prove it

KEN CHAPPELL, director at hockingstuart Mooroolbark, seems perplexed.

The experienced auctioneer was confident the selling method would gain in popularity in Melbourne’s outer eastern suburbs. Yet, two years after his move from the city’s auction-saturated inner suburbs, auctions account for just three per cent of sales in his territory.

His angst is palpable down the phone. Yet, a nearby suburb is beginning to see more auctions – it’s a ray of light in an otherwise lacklustre outlook.

Mr Chappell certainly isn’t alone when it comes to the challenge agents and principals confront when attempting to introduce the auction method of sale to an otherwise private treaty-dominated area.

Even those now considered successful as auctioneers found it incredibly tough in their early days.

Andrew Bell, principal at Ray White Surfers Paradise Group recalls that despite having success in Sydney with auctions during the 1970s and 1980s, starting out in the Gold Coast market in 1989 was far from easy.

“It was embarrassing,” he recalls when asked about the quality of auctions in the late 1980s.

“The first one we did, we had five properties and we didn’t sell one of them,” he remembers. “We did sell them afterwards but [it was tough].”

Ironically, however, it was these tough times that helped create the opportunity for his auction business to find its feet. Mr Bell says his breakthrough finally came when his agency managed to get mortgagee work in late 1990 and early 1991.

“[The company representing the mortgagee], from Melbourne, was looking for the most professional outfit to conduct auctions,” he says.

“We got identified as a cut above the rest.”

Mr Bell has now personally conducted around 14,000 auctions, and in January his office expects to handle 140 sales under the hammer.

While Mr Bell is a best-case example, most auction experts that Real Estate Business spoke to were adamant – auctions can be an effective form of selling property in most markets across Australia.

CAN AUCTIONS WORK ANYWHERE?

John McGrath, chief executive at McGrath Estate Agents, has a long history with auctions. The former winner of the Australasian Auctioneering Championship has built a 50-office network that sees 50 per cent of its total residential sales made via the auction method.

“I think the auction method can work in almost any part of Australia,” he tells Real Estate Business in an exclusive interview. “It certainly is benefited by a strong market and properties that are in demand, and there are some markets where that wouldn’t be the case currently. Having said that, we even find in some of the flatter markets, and the Gold Coast is a good example at the moment, auctions can work by signalling to buyers there’s a committed seller looking to make a sale in the next 30 days.”

Scott Kennedy-Green, McGrath Estate Agents’ chief auctioneer, says wherever there’s a McGrath Estate Agents’ office, there’s the belief auctions will work in that area. This includes an area like the Ballina/Byron Bay region of northern NSW, where auctions weren’t common until McGrath Estate Agents entered the area. Mr Kennedy-Green personally went up and conducted auctions, just to help get the practice off the ground.

Tom Esze, an independent auctioneer based in the heavily private treaty-focused city of Perth, is adamant any property can be sold by auction.

This includes properties considered ideal for first home buyers.

“In fact, more auctions under the $500,000 price level are being conducted than over $500,000, so the market where you would think first home buyers would not be successful actually is very active.”

PROPERTY TYPES

Mr McGrath cautions that he doesn’t walk into listing presentations with “auction blinkers” on.

“Even within the same suburb there are some properties that may not suit auction,” he says. “I think every listing needs to be taken on a case-by-case basis.

“If you’re in a market and you’re listing 10 Brown Street when half of Brown Street is on the market – and number 10 is no different to the others on the market – it’s probably not an ideal auction scenario.”

According to Mr Kennedy-Green, another misconception is that auctions work best when a property possesses unique attributes, as this limits the number of prospective buyers.

Instead, he says it’s easier for everyone involved when properties are easier to price.

Will Hampson, of Sydney-based independent auctioneers firm My Auctioneer, says for the most part, the property doesn’t have a lot to do with whether an auction will work or not.

“For me, it’s more around the vendor and their motivation. Is the vendor ‘auctionable’? Do they have a timeframe in mind? Where are they moving to, and why are they selling? So, what’s their motivation?”

Additionally, sometimes areas saturated with similar properties can readily lend themselves to the auction method of sale, he says.

“If properties are sitting in markets where there might be 10 or 20 similar properties on the market,” he says, “that one that’s gone to auction and has met the market is the only one that’s sold.

“It makes that property stand out from others … and not making price a deterrent to buyers going to view a property can certainly work very well.”

Ryan Thompson, director of Auction Services WA and director and principal auctioneer at ACTON Real Estate Southern Suburbs, agrees – an auction isn’t dependent on a certain type of property.

“It’s applicable to racehorses, jewellery, anything that has a value – this is a selling method, this has nothing to do with the product,” he says.

Jason Andrew, an Australasian Auctioneering Champion and director at south east Queensland-based Jason Andrew Auctioneers, concurs that strong homebuyer demand for a specific area is also not necessarily the key to developing an auction culture in a private treaty-dominated area. Instead, well-priced stock, combined with a proactive approach to finding buyers, is more important.

“Auctions work in areas where traffic is down,” he says. “There is a misconception you need multiple buyers for an auction to work. You don’t. You need well-priced stock. That’s where the majority of buyers exist.”

PUT ASIDE THE PRICE

A key question, however, is why would an agent decide to go down the auction route?

Shorter campaigns and fewer days on market are two key reasons often quoted for pursing a sale under the hammer.

But there is one positive that comes up regularly when speaking with experienced auctioneers, and that’s an auction’s ability to remove price from the negotiation.

Mr Thompson says this takes away one of the biggest hurdles agents face on a daily basis – talking price with vendors. From the time he started operating as a real estate agent in Perth in 2002, he says it was obvious that he was never going to be in agreement with a vendor on price.

“If you are honest about the probable selling price, and the seller disagrees, then you lose the listing,” he says. “You’re never going to get the price right. The vendor will always want more. Pricing strategy is fundamentally flawed, because if you want the business and you show the evidence, the sellers are going to pitch the property at an ambitious price and they’ll want some negotiation room, well above the market price.

“This in turn targets the wrong market and the property does not sell. Then you will end up trying to educate vendors on price over the next six months. The most powerful form of negotiation is when the agent and the seller are removed from the negotiation, and buyer competes with buyer,” he continues. “That is why sellers always receive the best result in a multiple offer or bidding environment.”

Mr Bell concurs: “Price indications – I’m opposed to them,” he says. “You run the risk of stopping people coming and having a look.”

“It’s a dangerous situation,” Mr Bell says. It can also undermine the auction campaign, something that he sometimes sees inexperienced agents do.

“Talking price, that’s a classic [error].  Another is when people make an offer, and the agents say, ‘I won’t submit it’.”

Mr Hampson says by removing price from the equation, agents can focus on the two areas that they tend to perform strongly in. “Auction takes care of the pricing, so then we’re focusing on the other two elements – promotion and presentation,” he says.

“So, the presentation of the property – many of the great agents understand styling a property, presenting it beautifully … and then promoting the property through digital media, online and also print.”

Yet Mr Thompson believes WA agents can be bullied by local buyers, whom he describes as “direct and inpatient”.

“The biggest failure of an auction campaign in WA is when buyers want information urgently, and the agent then responds when asked directly about price,” he says. “You can’t fall into the trap of giving them a price range.”

Mr Thompson does believe in offering some select recent sales evidence, which indicates the probable selling price – but only if the buyer attends the open home. “It’s crucial that buyers judge the property on its merits, not on the price,” he says.

He adds that another reason agents shouldn’t talk price is that buyers commonly look at properties that are priced less than they actually end up paying.

So you’re effectively marketing to the wrong audience if your price is quoted too high. Not everyone agrees, however. John Keating, of Keatings Real Estate, says he openly tells interested buyers what the vendor’s reserve is well before auction day.

AGENTS VS AUCTIONEERS

McGrath Estate Agents, which has a team of 22 auctioneers who exclusively service the network’s offices, believes it’s important for the listing agent to focus their energies on the four-week period before the auction.

“We don’t encourage agents to be both the selling agent and the auctioneer,” Mr McGrath says.

“We think there’s enough on their plate on auction day to deal with, without trying to be the auctioneer as well.”

Mr Hampson concurs. “If the auctioneer and the agent are one and the same … it’s very hard for an auctioneer to be out there negotiating with those buyers to get their vendor client the absolute best price for their property,” he says. “I think you’re either one or the other.”

For Andrew Drane, owner and principal at Harcourts Hills Living in Sydney’s Hills District, the opposite works best for his clients.

“The big advantage I had in building up acceptance of the auction process was the fact that I was the auctioneer,” he says as part of an opinion piece published on page 14 of this issue of Real Estate Business.

“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. This has been a powerful method of building the auction culture, because it has a lot to do with vendor comfort,” he continues.

“A lot of people have said they have liked dealing with the guy who’s involved in the agency, the listing and the auction.”

Having dedicated auctioneers can help deliver a consistent level of service, and breeds familiarity with clients. This is particularly true with McGrath Estate Agents, says Mr Kennedy-Green, as each of the 22 auctioneers within his network only operates within set territories.

“This helps local vendors and buyers get to know the auctioneers,” he says. “It can also help them do more auctions in one day, as they can get around quicker.”

COMMON VENDOR OBJECTIONS

Auction-oriented agents may have outlined numerous benefits of the process. Yet what are the most common reasons vendors continue to prefer private treaty sales? A common refrain from the auction-focused agents was vendors had witnessed an unsuccessful auction.

“Vendors, if they’ve had a bad experience with an auction, or if they haven’t had a campaign managed well in the past, might be a little bit shy of the process,” Mr Hampson says.

Another common cause for rejection centred on the perception auctions are more expensive than selling by private treaty.

“They have a perception that it’s a really large, excessive expense to take their property to auction,” he says. “In fact, whether it’s a private treaty or auction, most good agents will recommend a marketing campaign regardless.

“The only additional expense for them would be the cost of having an auction on the day, which is usually between $500 and $700 for an auctioneer.”

Mr McGrath agrees price can be an issue for some vendors.

“Some agents say, ‘We’ll just put it on the market, we’ll put up a sign in the yard, and we’ll just wait for a while’. My recommendation generally to clients is, irrespective of which method you choose to sell, you need to market it. Marketing is the key,” he says.

The other objection revolves around the public nature of auctions.

“A lot of people are less comfortable with the result of their sale being known in the community,” Mr McGrath continues. “It’s not a major reason but it is important for some people, especially if the circumstance of their sale is uncomfortable.”

Mr Andrew, who recently travelled to WA for an auction training event, said the objections that seminar participants told him about in Perth were no different to those he often heard in Queensland, and usually centre around concerns they are too expensive, they’ve seen one and it didn’t work, and they only attract bargain hunters.

“They are the same objections, no matter where you are,” he says.

“So agents can effectively prepare for the vast majority of objections. Just how agents should do this is less about the dialogues they use and more about the collection of information they provide potential vendors.

“This is about showing rather than telling.”

Advertising spend is one objection an agent can expect, but by showing just how much extra traffic a certain spend can generate – a spend of $5,000 has netted previous vendors an extra 40 people – agents can overcome this, he says.

THE ENEMY WITHIN

Few believe vendors are the main hurdle when it comes to spreading the auction gospel. Rather, it’s a reluctance by agents to engage with the process.

“Unfortunately, over years gone by, auctions weren’t successful because agents were selling them like a private treaty,” says Mr Esze. “[You may remove] price from the marketing using the auction process, but when a buyer asks for a price guide or an owner’s expectation, [some agents] can’t help but put it out there and give an opinion.

“If the buyer doesn’t see or feel value, you’ll never see them again. Not enough agents are comfortable or familiar with the process,” he adds.

According to Mr Thompson, some agents avoid auctions due to the accountability that’s required to be successful.

“The reason it doesn’t work is that when they research this method, they realise ‘We’ve got to talk to 20 buyers, report back to the vendor daily, hold open for inspections three times a week, and all for just one property – you must be mad!’” he says.

“This method of sale would hold them accountable, and it could prove to the seller that they’re not doing their job.”

Getting an agent’s buy-in is critical, Mr Andrew adds. “It’s not the geography that sells the method, it’s the agent’s mindset. Basically, ‘This is what we’re doing, we’re going to make it work’.”

Mr Hampson says there is some evidence, in NSW at least, that agents are becoming more aware of the auction process.

“I think over recent years the industry certainly has done a lot more to support the process,” he says.

“I still think there is more room for growth, particularly amongst some of the older agents who traditionally favour private treaty. Some of those agents are set in their ways.

“But we’re seeing a new breed of agent coming through who is more tech-savvy and very efficient with time management – they can see the efficiency in the auction process to enable both themselves and their clients to bring about an unconditional result for their vendor.”

GROWING POPULARITY

And even those auctioneers located in Perth believe auctions will grow, evidence of which is already present.

“I conducted 228 auctions in the calendar year of 2011 – which is a lot for WA – and whilst I haven’t had the chance to do my actual numbers for this calendar year, I’d safely assume an upswing of a good 20 per cent,” says Mr Esze.

Mr Thompson agrees – he estimates between three and five per cent of residential sales in WA are done by auction at the moment, and this will increase to 10 per cent in a matter of years.

But it will take time. Mr Thompson, who conducted an education seminar on how to auction in Perth in October, was surprised to see only 50 agents attend.

He had originally expected 250 attendees.

“It was just amazing confirmation that agents don’t want to educate themselves on it,” he claims. “The public are OK with auctions, they will take it on.”

Yet he won’t stop trying. He has two auction-focused education seminars planned for WA next year, one in April and another in October.

And it all just starts with one auction – that’s the common refrain of experts when asked about building an auction business. It’s like most things,” says Mr McGrath, “one person at a time, one sale at a time.”

PRICE SENSITIVE

Most auction-focused agents we talked to like auctions because it removes price from the discussion.

Yet, for John Keating, managing director at Keating’s Real Estate in Woodend, Victoria, price should be front and centre when it comes to auctions.

Mr Keating openly advertises a property’s reserve price prior to auction day. While he acknowledges many agents in Victoria don’t agree with his approach, he’s adamant it works. And what’s better, the transparency is applauded by vendors – and an increasing number of agents, albeit quietly lest their competitors find out and lambast them accordingly – who appreciate his upfront approach when it comes to setting a realistic price.

“What I’m doing would require a 180 degree turn by most agents involved in auctions,” he says.

He points to recent examples as evidence of his success, including one which involved a published reserve of $325,000 – the opening bid was $275,000, and it sold for $330,500.

A second example on the same day was a property with a published reserve of $495,000. This had an opening bid of $450,000, and sold for $506,500. A final example was a property with a published reserve of $3 million. The opening bid was $2 million, and it passed in at $2.85 million, following involvement from three separate bidders at $2.775 million, $2.825 million and $2.85 million. This sold immediately after auction for the declared reserve price of $3 million.

Knowing the reserve price is a big attraction to prospective buyers, because there is transparency of the price point at which the property will be on the market to be sold to the highest bidder.

His golden rule is vendors can decrease the reserve price prior to the auction, but never increase it. And he backs his policy with action, having walked away from one deal when a vendor sought to increase a $2.5 million reserve.

“We cancelled the auction” Keating said, “It was simple. If you want to be a trusted professional, you don’t surrender a reputation built over decades, by capitulating to any two per cent commission.”

Mr Keating, who has been in the industry since 1967, has been advertising reserve prices for nine years.

He acknowledges that in some other states – Queensland, for example – it’s illegal to reveal what the reserve price is. Yet he points out that agents do come to him and applaud him for his approach. Moreover, he notes the South Australian government is moving to make the reserve price more transparent in auctions held in that state.  

For Mr Keating, being open and honest about the reserve price is all about raising the industry’s standards, working towards a better auction system for all stakeholders, and limiting the chance for unscrupulous agents to underquote.

ONSITE VERSUS IN-ROOM AUCTIONS

For McGrath Estate Agents’ Scott Kennedy-Green, onsite auctions work best when it comes to getting the best price for a vendor.

“We like to do them onsite,” he says. “If we see it, smell it, touch it, and the property is priced correctly and gets emotional connection, [auctions work].”

Ryan Thompson agrees onsite auctions are very important, particularly when you’re trying to establish yourself in a new market.

“You’re doing an exhibition of the property,” he says. “You can get a whole lot of people who wouldn’t have otherwise attended.”

He says this happened with his own house, which was eventually sold to a buyer who stumbled across the sale on the day of auction.

Yet while Andrew Bell’s agency does both onsite and in-room auctions, he prefers the latter.

“To be in a room to see the hype and energy, to see properties sell – we sold 12 out of 16 just last week in an in-room – it can help. There are more advantages with an in-room auction,” he says.

Mr Bell conducts one of the biggest in-room auctions in the country each year in January, tapping into the strong influx of interstate tourists who travel to the region.

More than 3,000 prospective property buyers flocked to this year’s day-long auction, entitled ‘The Event’. More than half of the 145 properties sold.