Myth #9: Auckland Apartment Auctions - Only the Owner and the Agent Know the Reserve
Apartment Specialists Podcast No: 26
I go in-depth about auction in this particular podcast so you will know what to expect when you're dealing with an agent. This is another myth that you know about.
Andrew Murray, Apartment Specialists. This is quite a big one. When auctioning your property, only you and the agent have an idea what your reserve is. Now, that is a myth and it shouldn't be a myth.
Now, I'll explain to you - I've been in two major offices in the open CBD Market for starting my own company. Basically, both did their auctions in the same way. So, what would happen was, you'd have a meeting - you'd have your sales meeting - and those who were auctioning the properties would introduce their property. They'll ask everybody not what it's worth, but what would the reserve need to be to guarantee it to sell. And then, the agents would set out the price. Say, that's worth 200. Say, to guarantee it to sell, it would need to be 180,000. And if it was a 500,000 property, to guarantee it to sell, it needs to be $440,000. Then it would be the agent's objective to go and try to get that reserve.
The next week in another sales meeting, the agent will report back - different sales meetings or in different agencies at different trends are the ones that I saw - some would go, "What's reserved?" or "It's A plus-plus", which means it's better than you want it. Or, A-plus means it's on the money or A, it's pretty close. B-plus, it's a little bit far away and B, yes there's a bit of distance there. Other ones would be going like, "Yes, that's exactly where you wanted it guys. Go get your buyers" and it's going to the auction.
Now, it didn't really sit right with me but that's sort of how it's done in the Auckland apartment market when it comes to auction. And what would happen was a whole mentality: that by telling an owner that everybody knows your reserve and knows it's a low reserve, that's going to bring in more buyers - it's going to bring in more competition. Now I disagree with that because it's bringing in buyers that want a bargain. They're bringing in buyers who don't want to pay retail. And so, that's not the kind of competition you want. Yes, there is an argument that it does make the base of the auction and it can help in that way. But what it does is - it means that your apartment could sell for less than you really want to or what it should be selling for.
So, how to stop this or make sure this doesn't occur is, why even get the reserves prior to the auction? Why not keep it in your head and you and your partners head? And if the auction gets to the price you wanted to, well then let it sell. If it doesn't then go from there. Because if you think - put your mind in a bidder or in a buyers mind - you're bidding for an Auckland apartment - and they already got in mind what they want to pay. If it is a good auction and the other buyer is also emotional - you got two emotional buyers and they're pushing the prices up. You will at least know that it's met the reserve. If anything is going to make the buyer say, "Oh, that must be market value" or "That must be what owner wants. I don't want to go too much higher." So how is actually giving the reserve to the buyers an advantage to the vendor? I don't see the logic - maybe there's a side that sees it, but if they do please write in a comment or tell me.
That's a myth. So, when you're auctioning your property, if you do choose to auction it as a property that is suitable, i.e. not an investor apartment where emotions involved, don't disclose it. You don't have to; keep it in in your head. Then, you can make the best decision for you.
I hope that's helpful. Next month - I'm sorry next week - I'm going to talk about an interesting question. One that you probably wouldn't expect from me. What's my opinion on private sales? If you don't want to use a real estate agent - because a lot of people have had bad experiences with them- how do you sell it privately? And I'll just do a quick podcast on that.