Myth #2: Agencies Incentivise Auction as It Gets the Highest Price When Selling Auckland Apartments
Apartment Specialists Podcast No: 19
We will tackle why owners of agencies incentivise auctions and why they do this sort of thing. Get the facts straight from this podcast.
Andrew Murray, Apartment Specialists. Myth number two. Agencies incentivise auctions because it is in the best interest of the owners.
In my own opinion, that is a complete myth and from my experience it has been a complete myth. Owners of agencies incentivise auctions because it's in the best interest of the agency.
They do that for three reasons.
Because an agency is like any company, it needs to predict next month's income. And the best way of doing that is through auction - because auctions are more likely to sell. The reason is because of the pressure of an auction - the amount of money spent on the advertising. The owners go all in. They're not going to that point and go "Oh, we're going to spend that $4-5,000 again". So for an owner, they can predict and look okay we've got 10 options next month, that means on average we sell 90% of all our options. So that means there's nine sales right there.
Now at the moment, in the housing market, they're in line. In my opinion, in the housing market, if I had a house, I'll sell it by auction because that is the best way to sell at the moment. Currently, because there is a lack of supply of listings and there are more buyers. They're emotional buyers so there are more. But if you looked at it three years ago, it would be the worst way to sell your house because we all know what was happening. There was nobody around to buy. It was a crash - it was a financial crisis.
Now if you look at apartments, where there is a huge amount of supply - over 611 apartments currently. Well, why are auctions being used if they aren't having the same result in the housing market? Why are they being used to sell lease-hold property when there aren't any buyers? It's because the owners incentivise them. They're giving their agents more commission or more commission goes to a listing agent. Then the agent finds a buyer because it's selling by auction. The other reason why agencies want auctions is because all the advertising of the publicity, that's half ego and it's half because it kind of works. The more publicity you have, the more market share it appears you have. And so other owners are more likely to go to that agent or agency because of the advertising.
So I hope that's really given you a different point of view of how auctions are being used. In my opinion, why there are so many auctions in the apartment market, where especially in buildings where they are lease-hold buildings. You don't have owner-occupiers purchasing them. It's all about the numbers - there isn't the emotion and continually- again and again -I'm not getting the best prices, listening to the prices, yet auction is chosen again and again.
Okay, next week we are going to talk about something completely different - rental companies. Being that 70% of the Auckland apartment market is rented, it's a pretty big topic. The myth is that all rental companies are equal.
Thank you, cheers.