A headline from today’s Financial Review:
?Home Auctions in Doldrums Despite Rate Cuts?
No. That’s not the real news. The real news is the failure of the auction system itself; and how agents and auctioneers aren’t coping with the pressure.
Right now the system is on the ropes because the market has tanked; but its problems run deeper than that. The elephant in the room is whether the auction system itself is working in vendors’ best interests.
The agents make the argument that auctions work because they bring buyers and sellers together at a known time and place and that they have the clearance rates to prove it. This while people, especially at the top end, are keeping their hands in their pockets and refusing to bid. “Ah!” counter the agents, “That’s only in today’s market and that’s when post-auction negotiations begin and the sales are made.”
Then why blow $30-40,000 marketing an auction if its only effect is to trigger a private sale? (OK, some properties are still selling at auction, some even against vendor bids, but that only illustrates Mr Barnum’s reported adage regarding the birth rates of suckers.)
Agents and auctioneers are suddenly having to earn their fees; and a lot who have known nothing but rising markets are now out of their depth. The cardinal sin that we’re seeing is starting with a vendor bid that’s way too high and is then greeted with stony silence. Where to from there? Plead with buyers? Sure. Here, help yourself to my millions, I hate to see you suffer.
Then why is it that the auction system itself should be called into question? (A disclaimer here: we have used the system for our clients’ and our own profit for a great many years. It’s not in our interests to see it die, but nor is it sensible to pretend that it’s not.)
A little bit of history: Wind the clock back 30 years and the only auctions on the landscape were Mortgagee or Deceased Estates. Everything else was a private sale.
So why and how did Melbourne become the auction capital of the world?
Short answer: The Money.
Agents realised that if properties were auctioned, auctions had to be advertised. For many, many years, they took commissions from the media and that alone was enough to keep them in BMWs.
Today they can’t take that commission, but still when a property is advertised, it’s also an ad for the agency. They build their brands and their vendors pay for the privilege.
It’s a great business model. All your stock is paid for by the vendors, who also pick up the costs of your advertising and marketing.
So the auctions continue and the agents are desperate to get sales at any price and the post-auction action is to beat up on vendors “to meet the market”.
The vendors who have paid for all this are the real losers. And they’re starting to realise that.
Then why is it not common knowledge?
Because both agents and media have vested interests in keeping things as they are. (We, too, would probably be wiser keeping our mouths shut; but that’s not something we’re very good at.)
So. Where to from here?
If you look almost anywhere else in the world, you’ll look hard to find real estate sold at auction. It’s not like it’s an essential.
And the marketing of properties is being changed by the internet in ways that could not previously be imagined. Evidence? Look at the Fairfax share price. From over $6 in early 2000, it’s now under $2. The classifieds, the rivers of gold, are running dry.
Vendors, especially at the top end, can now put their properties in front of 90%+ of potential buyers for a few hundred dollars. Why not, then, first try the market as a private sale? The auction, we predict, will become a last resort and come to be seen again as the vehicle of the desperate.
In the meantime, we have some interesting months ahead and some great value for buyers at the end of failed auctions.
The week’s foot-in-mouth award goes to … us.
And do you remember (Top End Trends, Oct 20):
And there?s a bit of strangeness about. We heard last week that the owners of a large block of land in Toorak knocked back a $14 million offer against a $10 million+ quote price. Big call. The would-be buyer turned around and bought a similar blockin Hopetoun Road for $12 million. That?s a gutsy vendor as that buyer definitely isn?t there any more; when expressions of interest close at the end of the month someone is going to be a hero or an idiot.
Just in case you (or we) thought we were infallible, it was the Baillieu Estate at 39-41 St Georges Road and it sold late last week for just under $16 million (um, the quoted price was “$10 million +” – does anyone remember a law about underquoting?). We thought they could have been idiots for knocking back $14 million ? who?s the idiot now?
Bayside waves, drowns.
With auction activity in the middle and at the top end of the market well and truly comatose, it was again privately negotiated sales which restored a degree of optimism in what has been a dismal Spring for sellers.
It seems that successful vendors are at last getting a message we have been shouting for most of this year (and, at last, agents are also becoming more realistic). Kids, the game has changed. The value revision is here to stay.
Even so, the number of properties that are still being put under the hammer with serious sums of money spent on marketing over a four week period ? at prices which offer little or no prospect of receiving a genuine bid ? beggars belief. A cynic might say that a large part of the advertising spend is agent self-promotion and vendors having to stump up significant sums on campaigns resulting in no bid, no buyers and no result is likely to make them just slightly testy.
Buyers are taking their time in assessing what is on offer and with no real pressure to jump in and commit immediately, the average property needs more time on the market than the usual four week auction-driven campaign.
Is this (see above) the death-knell of the auction system? That debate is just beginning, but what’s sure is that unless a property is well above average and ticks all the buyer boxes, including price, why would any vendor choose to go through the pressure of an auction when all there is to show at the end is a big bill?
The week’s results in upper-end Brighton were far better than has been the case for over a month. While some are results of auctions and post-auction sales, most are conclusions of private sale or internet campaigns.
The price leader for the week was the sale of 23 Sussex Street, Brighton following an expression of interest (read private sale) campaign that closed several weeks ago. Although the selling agent is playing coy, close to $4.5 million is believed to have sealed it.
44 St Andrews Street ? a single level notable Victorian needing updating on 1476 sq m ? was sold for $3.05 million after several months on the market.
10 Male Street, another Victorian on 910 sq m on the corner of Black Street, achieved an excellent price of $2.7 million after less than a month on the market.
397 New Street, on the corner of Elwood Street, was sold 10 days after auction. The best at auction was a vendor bid of $2.3 million, so the selling price of $2.52 million was a vast improvement.
62 Dendy Street was one of very few auction sale results and achieved the top gong for all of Melbourne. It sold as a result of post-auction negotiation for $2.3 million.
Another off the plan sale has been negotiated in Jonathon Hallinan?s ?Provence? development at 15-17 Bent Street for $2.2 million, the second sale reported in three weeks.
A large town residence at 284 St Kilda Street on 447 sq m has sold privately for $1.87 million. 98A Dendy Street a well-built single-level townhouse, realised $1.675 million following another low-key private listing.
And finally a tale of two contrasts with real live bidding producing a sale under the hammer at 37 Male Street ($1.375 million) and a sold sticker has finally appeared on 64 St Andrews Street. Having been auctioned many weeks ago with an expectation in the vicinity of $1.6 million, the final result was apparently just shy of $1.4 million.
Further down the bay in Black Rock, a trophy home with a tennis court on 1959 sq m at 227 Beach Road has been sold after auction with a cone of silence on the sale price. It was being spruiked in the high $3 millions and presuming a result close to the expected, would make this one of, if not the strongest, results in the Black Rock/Beaumaris area for some time.
Everything over $1 million in Hampton was passed in with only vendor bids to be heard.
37 Sargood Street at $1.28 million, reserve $1. 38m; 4 Storey Avenue at $1.38 million, reserve $1.45 million and 71 Thomas Street at $1.26 million with a reserve of $1.35 million. Where have all the million dollar buyers gone ?
Unhappily, Bentleigh appears to have succumbed to the passed-in malaise so obvious in other parts of the Bayside with a only two results from 12 offerings.
Our current advice? Some very good opportunities are starting to arise in all price ranges, but particularly above $1 million. Keep your radar well tuned and be prepared to act decisively when the occasion presents.