Posted on 26/04/2017 by Todd Pearce
Auctioning a property to achieve the best possible price is a long held myth that does not hold up against reality.
Whenever you have the fortunate situation of more than one buyer trying to buy your home, the worst thing the agent could do is disclose the competing offers to each of the interested buyers – which is exactly what happens at a public auction.
In such circumstances, the respective buyers focus becomes outbidding the competing buyers by $1,000, as opposed to offering their highest price for the property. When you are selling your home, you want the eventual buyer to have paid their maximum price for it.
To win an auction, the buyer does not need to pay their maximum price, they just need to be the highest bidder. Selling to the highest bidder as opposed to the buyer whom offers the highest price is why auctions fail to achieve the best price for home sellers.
If one buyer is prepared to pay $1.1 million to buy your home and the under bidder is only prepared to pay $1 million, it is mathematically impossible that a public auction will attain the best price.
Home sellers are often told that the auction deadline pressures the buyers. As the auction deadline draws closer, the pressure is often transferred onto the seller to come down in price. Agents call it “meeting the market”. The pressure is increased on the seller to come down should the auction fail to reach the reserve price.
It damages the price of your home if the property is passed in to a bargain hunter on auction day. Any chance of a high price is destroyed when your home passes in for a low price at the auction, in front of a big crowd.
Buyers will wonder what is wrong with your home when it fails at auction. The home is often not the problem though. The selling process failed the owner.
Further evidence that auctions don’t get the best price can be found in observing properties that have passed in. It is extremely common for a property to be passed in at auction and then sell for a higher price after the auction during a negotiated process. If auctions really did get the best price, it would be common for owners who decided against selling on auction day to sell for a lower price in the subsequent marketing period.
Many countries only use public auction as a last ditch means to unload a property with disregard for the price. In such circumstances, the bank has foreclosed and it is merely interested in a sale to reclaim monies owed with little interest in achieving the best possible market price for the property.