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There’s no question about it, the current market is tricky and delicate.
Buyer confidence is low, buyer commitment and resolve are low, price caution is high. Many buyers are dropping off properties in the days leading up to the auction, believing they will go for too much or because they are simply not wholly committed to buying right now. And buyers who do turn up and register are frequently acting with caution in the way they bid and engage on the auction floor. Essentially, the interest rate crunch has created a market full of buyers who are all wondering, “Do I buy now or do I wait till rates come down?”
Cost-of-living pressures are also factoring into the equation. When you combine high borrowing and holding costs on mortgages with inflationary pressures on most household purchase items and out of control cost of living in Australia, that amalgam has many would-be buyers in a state of extreme price caution. Buyers simply don’t feel they have excess funds to splash extra cash on their property purchase, and so the dominant sentiment among them in the current market is price caution.
When buyers are examining property at the moment, they are searching for value. They want quality property, but they want to see that the likely end sale price will represent value. So price guiding and pricing indications have become a crucial element in sowing the seeds for auction success in the current market.
General cynicism among buyers towards auction price guides and pricing indications has also become a factor. Due to the propensity for properties to sell at auction at least 10 per cent or more above their auction guides, buyers are now mentally adding 10 per cent (or more) to price guides and making the assumption that the likely end sale price will sit that much above the guide. So when you consider the equation of value, in order to get a buyer interested at the moment, your price guide, even when you add 10 per cent to it, still needs to look like reasonable value to the buyer if you want to get them engaged.
Sharp and attractive price guides are proving to be an absolute must in the current market if you want to run a successful auction campaign that gathers maximum buyer engagement and generates competition. Our observation across the Sydney auction market throughout this year has been that nearly all the strong auctions we have run have been on campaigns with attractive guides and where pricing dialogue has been conservative from the agent. Campaigns where there is even a hint of optimism on price are simply being punished by lack of buyer engagement and apathetic bidding come auction day.
I know underquoting is a hot topic in the real estate space. I am not suggesting that agents should work outside the compliance lines. I merely make the observation that this is the reality of the current situation. Attractive price guides are being rewarded. That is a fact. High price guides are getting punished with lack of engagement. That is also a fact. This is the classic conundrum for agents who need to balance their compliance requirements with the desire to run a successful campaign that generates competition. So how does an agent work within the compliance framework and still do what’s best for their vendor’s auction campaign? I don’t propose to have the perfect answer to that. I merely make the observation as to what is working and what is not.
The old adage “quote it low, watch it grow; quote it high, watch it die” is truer now than ever in this very price cautious market.
Clarence White is an auctioneer at Menck White Auctioneers.
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