Auction

Auction

Auctions are where you are pitted against other buyers in a room, and the highest bidder by price has rights to the property. Almost all auctions are unconditional – meaning you are buying the property as-is, having gotten the relevant inspections and approvals prior to raising your hands. Note that bids are binding – auction rooms are not a good place to be indecisive.

Auctions in Auckland are ruthless – the auctioneer will generally not pause, and once a property is on market, they will attempt to bring down the hammer fast, to move to the next lot.

Read more here: https://www.settled.govt.nz/buying-a-home/making-an-offer/buying-by-auction/

Participating in an Auction

Pre-covid, auctions were pretty straightforward. You show up at the house or venue where the auction is being held, register, and raise your hand. Nowdays, you can bid online (like Trademe but faster), and watch live-streams for most agencies, especially Barfoot.

If you are serious about a house, ALWAYS, and I mean ALWAYS, participate in person. It's hard to explain but you will have a different sense of the room and the counter-bids.

Vendor Bids

Don’t fall for this. A vendor bid is where the agency is making a bid on behalf of the vendor! Some agencies use vendor bids as a way of encouraging bids, some are obvious with it, some are less desirably so. Do not bid, entertain, or bid against the vendor, hold firm.

Bidding system

The bidding system is like any other auction. Raise your hand to bid, and clearly indicate the price you want to pay, or the amount you want to increase by. Shout out clearly and loudly "10k" or "1.2m". If you say the wrong thing, immediately shout out the corrected amount. There will be screens that clearly display the current bid and the auctioneer will suggest the next bid. You don't have to take their suggestion, but they don't need to take your bid either.

Opening Bid

The auction requires an opening bid to start. This can be any amount. The property is not going to be sold until the "reserve price" is met, so when you make a bid, it doesn't mean you're going to get the property at that price. At many auctions you will find nobody makes a bid, the property passes in, then a multi-offer negotiation starts. This tactic may work, but I prefer to place an opening bid, ascertain interest, and then let it pass in to negotiate, or start bidding against.

Reserve Price

The auction can start at any price allowed the auctioneer, most auctions will have what’s called the reserve price – the price at which the property will be sold under the hammer, in the room, in this session. You’ll know when the reserve is met when the auctioneer calls out “reserve met”, “on the market”, “now selling” or similar. Basically, from that price onwards, the house is guaranteed to be sold to someone in that room.

Paused for Negotiation

Sometimes properties won’t meet the reserve price, this is because the vendor has an unrealistic expectation, or the market demand just isn’t there in the room. The auction will typically “pause for negotiation” and agents will negotiate first with the highest bidder at the time (first rights). Different agencies take different approaches. Barfoot & Thompson will negotiate a new price and put that price back on the auction floor for others to bid on, while Ray White will take the property off market to negotiate directly if a deal is reached in principle during the negotiation.

Passed In

If a property does not meet its reserve, and negotiations in the room fail, the auctioneer will pass the property in. This puts you in a good position to negotiate a conditional offer.

Personal Note: Jay’s auction tactics

I love auctions. It’s a sure-fire way to see and set market prices, and there is no information asymmetry. I have lost many auctions, though never at a price I regret. Remember you have two opponents – the vendor, and other bidders. You want to be ahead of other bidders, but below the vendor. This is a time when you need to be cocky, smug and confident. Don’t be afraid to boss the room around. You want everyone think you’re insane – that you’ll pay a crazy price for it or you won’t pay at all. You want the other bidders to think you’ll bid high but leave them holding the bag of a crazy price, and the vendor to think you will walk away to the next house and leave this with an unsold property.