Auction Failure # 1

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Auction Failure # 1

auction failureWhat is the number 1 Auction failure?

Well in my opinion it is settling for a reserve price that you would not be happy to sell your home for.

You simply have to ask yourself  “Would you rather look like a fool or actually be a fool?”

That’s the question I ask you right now. It’s something I’ve just recently struggled with when deciding what reserve price to place on my home at my upcoming auction.

Having done quite a bit of internet and foot based research on similar homes in my area I decided that I wouldn’t be happy to let it go for anything under $650k. In fact I thought it might even push up in to the high $600s with a bit of luck. Other slightly better homes had been fetching in the low $700s so I know that there were buyers out there with the money. It’s just a matter of whether any of them value my home in a similar light or not.

My agent who is keen to sell it and has been working hard over the past month with his own figure in mind suggested I might want to set a reserve of $605-620k.

He said “There’s 4-5 interested groups who’ll be bidding on the day” and  “When the house passes reserve it will initiate a bidding frenzy” or words to that effect.

I said, “That’s great, but I wouldn’t be happy to sell for the low $600s. I’d rather look like a fool on the day and have the property passed in than actually be a fool and sell it for less than I think it’s worth”.

Now this is an emotional issue and it’s easy to get carried away with thinking your home is “special” and worth such and such.

In the end it’s only worth what the market is willing to pay, no more, no less.

Clearly, the idea of an auction is to pit buyer against buyer, to get them emotional, competitive and pay their top dollar. That’s the idea and sometimes it works, especially if there’s more than 1-2 interested parties.

But suppose some of the “interested” parties are a bit naive and think that the selling price will be near to the “suggest” price. Perhaps they haven’t been to 5 previous auctions. Perhaps it’s their first home and they only have so much available to them. If Mr agent thinks that they are going to e embark on a “bidding frenzy” just because you house passes reserve and official goes “on the market” you might be in for a tremendous surprise.

I recently attended an Auction in my local area, well actually I just missed it because I turned up 5 minutes late. It was a lovely home, in the style I really like. When I inspected the home I thought, “Wow, I love it. It’s definately in the $600s. I would pay $620k for this if I had it. This house is perfect for me.”

When I asked the agent what it might go fgor he was non-comittal (as they should be, drawing you out) and said somewhere in the mid to high $500s. I thought he was just having  a lend to sucker me into getting excited and getting on his datbase of leads. But in hindsight I think he was serious.

As I said, I missed the auction. But I was shocked to learn that it was sold pretty quickly for right on $600k. I suspect that the reserve was set a this level and no one bid above it.

I truly believe the home could have fetched more with better marketing and negotiating. Perhaps the vendor was happy. If so, good luck to them.

The bottom line is, don’t become entangled in the emotion of the day of sale. The pressure is meant to be on the bidders, not on you, the vendor.

DO your research. Look at what people are actualy paying for houses. Don’t listen to your friends and neightbours who will (unintentioally) have an over-inflated opinion of your homes worth.

Decide on a figure you would be happy to sell at. Don’t attempt to “outsmart” the buyers and stimulate some sort of “bidding frenzy” in the real hope that  you sell for a much higher level than your reseerve.

Once the house is on the market, it’s on the market. When the hammer falls, it stays fallen. Depending on the price, that could well be an auction failure.

The worst thing that can happen if you’ve set a fair reserve is that you pass in the property and simply start a round of negotiations with 1, 2 or even 3 intereted parties who have already laid their cards on the table.

You’d be negotiating frrom a position of strength. That’s not an Auction failure!

Until next time,

 

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1 Comment

  • Excellent article, Dwight….very thoughtful and insightful. Hope you write more of these articles on are regular basis.

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