As house prices boom across New Zealand, auctions are rapidly gaining popularity. But are auctions for everyone and do they really get better results?

Outside Auckland, auctions have long been viewed with scepticism. This sentiment has been helped in no small part by the popularity of auctions amongst the real estate fraternity. However the Real Estate Institute of New Zealand (REINZ) has recently acted to allay public fears about auctions with the release of a code of conduct, “designed to address areas of conduct in auction practice which may in the past have been misunderstood by the buying and selling public”.

Whilst this is undoubtedly good news for the consumer, it suggests that there may have been many and varied recent misunderstandings to prompt this legislative review … particularly given the Code’s opening mantra: “When conducting the sale of a property by auction, members shall not engage in any conduct which is misleading or deceptive”. But surely auctions and auctioneers can’t be all bad?

Rising market favours auctions
There are genuine reasons why auctions have increased in popularity over the past few years. The current housing boom means that buyers generally outnumber sellers. More buyers means greater competition. Auctions focus this competition into a few minutes in time and in a public venue.

A competitive environment is designed to stimulate already committed buyers (auction sales are not conditional, therefore the bidder needs to have pre-approved finance, a 10% deposit and have carried out the necessary checks on the property) into bidding to their absolute maximum. The option of a reserve price in theory is a safeguard against the property being sold below value. Furthermore, despite setting an auction date, there is nothing to stop the vendor from accepting an offer beforehand.

However, selling by auction is an inexact science – and there are pros and cons. As the vendor, you will be footing the bill for the marketing campaign, with the timeframe perhaps excluding potential buyers who may be reliant on selling their home first.

Also, it is not uncommon for properties to be promoted at a price below the vendor’s reserve to attract more ‘interest’ come auction day. When buying at auction, the onus is on the purchaser to have done their homework and to remain calm under pressure. Emotions should be kept in check.

Auctions - best for certain types of properties
The new code, combined with the current imbalance of supply and demand in the property market, suggests that auctions will be an increasingly viable option for both buyer and seller. Equally there is a school of thought that suggests certain types of property lend themselves more to auctions than others: for example those with standout or unique features as opposed to more traditional suburban townhouses, tend to sell best at auction. Generic properties, those in less desirable areas or those at the lower end of the price scale are seldom suited to auction sales. No matter what advice you receive, the key for both parties is not to get caught up in the pressure cooker atmosphere. The sale or purchase is your decision to make … and one that should not be taken lightly.