People in the Eastern Suburbs often ask: given there are so many different methods of sale, what is the best method to sell my home?
Long story short: some sales methods will work better for your particular property than others. There are many key factors that come into play when selling a house and the type of selling method is only one of them.
I will provide a brief overview on the different selling methods and offer some general points of consideration when thinking about the right method to sell your home.
Deciding which method of sale to use.
The key factor when deciding on the method of sale is the number of possible buyers and the types of buyers who are interested in the home. A stellar home in a prime location will likely attract a large pool of interested buyers, especially in a hot market, and an auction can spark competition amongst these buyers.
Another important factor is your motivation for selling (i.e. time). An auction (with an appropriately set reserve) will help you sell a property in a set number of days if selling quickly is the primary goal. A private sale with less buyer exposure can take much longer to close.
Auctions are the most common method of sale in Auckland given the hot property market in the past few years. It is a publicly conducted sale in which a property is sold to the highest bidder.
Depending on the market conditions and the type of property, auctions can be the best way to achieve a premium price with cash unconditional offers in a short timeframe.
The deadline timeframe of auctions and the unconditional sale upon the drop of the hammer create a sense of urgency and focuses potential buyers. The open format of auctions and a top notch auctioneer also will drive buyer competition to obtain the best possible price in a transparent environment.
However, the necessity for buyers to be in a cash unconditional position can be a hurdle for many, especially with entry level properties or properties with some issues (such as lack of CCC etc.) or in a stable/declining property market whereby many buyers require sales of their own property prior to purchasing or lack the confidence to purchase without selling their own property. The tightening of credit availability by banks to potential buyers is also a major factor to consider. All these factors necessarily reduce the pool of possible buyers who may already have put in an offer if another method of sale had been chosen.
The auction process
The auction process starts with a specific marketing campaign which can take typically three to four weeks culminating in an auction. During such a process, a good real estate agent will ensure that you will receive feedback from the market which will help put you in a position where you are able to decide on a ‘reserve price’ for the auction. This usually takes place on the day of or the day before the auction.
A reserve price is the lowest price that you will be willing to accept for the property. If no bids are made at or over this reserve price, the property will be passed in. In the event that a property is passed in, then potential buyers will have the chance to negotiate with you.
If you want to consider offers prior to the auction, you should state this on all your marketing from the start of the marketing campaign. There are agents who discourage pre-auction offers as they think that they can get better offers over a longer marketing campaign. The longer marketing campaign should be weighed against your motivation for selling given that the pre-auction price is already acceptable to you.
In a buyers’ market (i.e. stable market prices), a pre-auction offer might also be very attractive such that you should grab onto it while you can before the buyer walks away and buy something else. This is especially so for properties in the higher-priced suburbs of Kohimarama, Orakei, Mission Bay, Glendowie and St Heliers – it often pays to talk to that buyer who has made the pre-auction offer even though the starting offer might be lower than what you expected. Don’t just reject the offer outright, although there are differing views between agents on this point.
A note about auctioneers
Not all auctioneers are created equal. I believe that if you choose to go with an auction process, then you should go with the best. Otherwise, your chances may be much better if you have opted for another selling method as the auctioneer will make a world of difference for a successful auction.
PRICE BY NEGOTIATION
Where other methods of sale are not appropriate and there is some doubt about the right price to put on your property (for example a lack of comparable sales in the area), a possible method of sale is to market your home for 1 to 2 weeks ‘by negotiation’.
With this method of sale, the property is marketed with no price which encourages buyers to offer what they believe your home is worth.
You have the ability to negotiate with buyers and accept conditional offers, and no deadline date is set.
This is frequently done after an auction campaign when the property has been passed in (either due to a lack of bids or the property failing to meet reserve price) and will allow you to obtain some market feedback prior to advertising with a price.
A good real estate agent will strive to create a multi-offer situation, in which there are competing offers at the same time, in order to achieve the best outcome for you.
However, it is generally not a good idea to leave the property by negotiation for longer than 2 weeks – buyers do get frustrated at enquiring about many properties without price indicators and they often dismiss properties on this basis. This potential drawback, however, can be ameliorated because they search on sites like Trade Me and realestate.co.nz using specific price ranges – a good real estate agent will therefore set an appropriate price range. If the price range is too narrow, the pool of potential buyers become narrower. Conversely, if the price range is too wide, the number of ‘dreamer-buyers’ increases and can be a waste of time.
In the real estate industry, price by negotiation can be an indication that the seller wants too much for his/her house and the agent does not want to put a ridiculous price on to scare off potential buyers.
An asking price is placed on the property and purchasers can make conditional or unconditional offers. The upside of this selling method is that all buyers are now aware of the vendor’s expectations and there is no time pressure on vendors or buyers. There can be an ‘anchoring effect’ (think about a car sale!) in which the list price is higher than the true ‘acceptable’ price – there is therefore room for negotiation for both the buyer and you, the seller. The initial price tends to act as a reference point for subsequent discussions around the price thereby shifting any buyer’s discussion toward the higher end of your price range.
However, there is often temptation, egged on by real estate agents ‘buying’ the listing (which creates unrealistic price expectations), for you to list at the upper or maximum end of the price range. This will lead to a lack of buyers who would be familiar with market prices and are quickly put off by an obviously overpriced property. Subsequent price discounts will make you look like a desperate vendor and attract the bargain hunters.
Therefore the key for a successful execution of this selling method is to accurately list the property at a price with an appropriate ‘negotiating’ buffer which a good real estate agent can advise on.
With a fixed price marketing campaign, the price is stated on advertising and there is no deadline by which the property has to be sold. Buyers can now feel encouraged to make offers as they know the price at which you are willing to sell. In a stable or declining market, this can be important in getting appropriately priced offers.
If priced accurately, such a selling method can also result in multiple offer situations. In fact, we have had attractively priced properties in the Eastern Suburbs selling just days after going onto the market and achieving a price higher than the asking price due to competition generated by a multi-offer situation.
DEADLINE SALE/SET DATE OF SALE
With deadline sales, there is a prescribed deadline date by which time all offers must be made. This method of sale is similar to that of auctions – the sale price is withheld and the deadline puts pressure on buyers, which helps achieve a premium price. The key difference is that offers are confidential (compared to an open format in an auction) which affords you more time to consider and negotiate offers (including the conditions).
A deadline sale allows sellers and buyers to work within a set timeframe and creates a structured environment for all parties involved and creates a level playing field for buyers. As offers are all presented at the same time, chances of a multiple offer situation will become maximised. You can then accurately assess if you are seeing the best from the market. Buyers have a prescribed time to carry out their due diligence (which can encourage unconditional offers, especially if there is buyer competition) but this also avoids a prolonged buying process without a deadline in sight. You may state that prior offers will be considered and if stated, you retain the right to accept an offer at any time.
Another advantage is the opportunity to establish where the market is seeing the value of the property during the deadline process. If the property is not sold on the deadline date, the property can be re-launched with a price based on feedback during the deadline process.
This method of sale can be particularly appropriate for property sales whereby a number of parties must be consulted e.g. deceased estates or whereby buyers would have to carry out due diligence due to certain characteristics of a property (for example development sites or code compliance certificate issues).
In a stable or declining market where there is a real risk of a lack of unconditional buyers showing up at auctions, deadline sales can be an attractive way to sell a property but work needs to be done during the advertising campaign to attract the offers.
A tender will set a specific timeframe (usually over a 4-5 week campaign), which allows purchasers time to carry out their due diligence and then make a formal offer. This method of sale encourages potential buyers to complete their necessary due diligence and have finance in place, which reduces the time delay between acceptance and settlement. The vendor has the flexibility to countersign the preferred offer.
Sale by tender, like a deadline sale, has a specific date on which tenders close. Tenders are conducted using specific tender documents and have certain protocols to follow (for e.g. deposits being attached with the initial offer and vendor having 5 days after tender closes to consider offer). Tenders are strictly confidential until they are opened on tender day. Properties are usually sold to the highest bidder or the most attractive offer with the least conditions.
Expressions of Interest
With this method of sale there is no price and it invites both conditional and unconditional offers. The vendor can choose who they negotiate with. Buyers must send an expression of interest (usually a document) before the specified deadline.
This method of sale is often used for the ultra-luxurious properties with high selling prices. As such, the average buyer is likely to be unfamiliar with this method of sale and hence should be used with care.
So Which Is The Best Method?
If after reading the above, you are feeling confused as to which method of sale is the best for you and your property because there are simply too many factors to consider, and you would like some honest and genuine advise, get in touch and I am happy to have a discussion with you as to how best to proceed! I’ll bring coffee and you just have to bring an open mind!
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Disclaimer: Yes, I am a licensee salesperson under the REAA 2008, but I am not your salesperson and this article does not create any relationship between you and me (other than reader and author of course). All the information on this website is published in good faith, for general information purpose only and should not be seen as specific financial or investment advice. I do not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information you find on this website is strictly at your own risk.