Real estate has grown rapidly in the past year, with REINZ reporting that New Zealand homes' median sale price has increased by 22.8% (March 2021.). With the market growing like wildfire, real estate and its affordability have quickly become a hot topic in the media.
Head of the Reserve Bank, Adrian Orr, recently blamed auctions for the property markets sharp increase and encouraged buyers not to partake with this selling method. With all the coverage on this conversation, I thought that it was time clarity was brought to the situation.
Auctions cannot be banned, despite the wishes of many first home buyers. While auctions won't be going anywhere, this does not mean buyers have to partake in them. During his interview with The AM Show, Adrian Orr noted that, "Any type of market that creates a frenzy or the FOMO, the fear of missing out, does create irrational behaviour."
I encourage vendors with homes that appeal to first-time buyers to sell via deadline. After 15 years in the industry, I don't believe that auction is the best method of sale when dealing with first-time buyers. The two main reasons we advise owners of first homes to sell via deadline rather than auction are the ethics of sale method, and the end result. I believe in this so strongly, that we have actually lost listings over this advice. Meanwhile other agents follow the market myth and tell vendors what they want to hear, not what is best for them.
While Adrian Orr blames FOMO for the spike in property prices, with New Zealand's housing shortage, FOMO can not be avoided, no matter the method of sale. It is, however, unfair to auction first homes due to the cost entailed to bid. To participate in an auction, a buyer must have done their due diligence and are likely to have paid for a builder's report, home valuation and solicitor.
These fees quickly add up and can often collectively cost more than $2,000. Buyers are making a significant investment to simply bid at auction, with no assurance of ownership. With these costs quickly equaling part of a small deposit, many first-time buyers won't be able to attend and bid at five auctions.
Despite popular belief, auctions don't get vendors the best price possible. After years in the industry, I know the most important rule to follow when selling real estate is to engage with the whole market. If a first home is put on the market for auction, the vendors and agent responsible have immediately limited their buyer pool. When only a portion of the market is engaged with, and the buyer pool is limited, the end sale price is compromised. To put it simply this means, the more interested parties, the better the sale price and as previously discussed, auctions aren't first-time buyer friendly.
Whether it be Kiwisaver, limited, or exhausted funds, or because it simply does not make sense for first-time buyers to spend thousands on each auction in today's competitive market, less and less first home buyers are participating in auctions. According to Adrian Orr's recent comments, we can only expect this trend to continue.
While I agree that auctions are challenging for first-time buyers and don't translate to the best results, there is a time and place for them. Auctions are great when a property is unique and appeals to the mid-high end of the market. These buyers can afford to make emotional decisions, and the required investment to bid at an auction isn't as noticeable to them as it is to first time buyers. The whole market can still be engaged with, therefore the best result produced.
At Najib, we don't believe in chance. We believe in hard work and know that we give our clients the best advice. Our job isn't just to sell a home; it is to provide our clients with the opportunity to sell their home for an extraordinary price.
I hope this article has clarified the 'banning auctions debate' and made clear the best sale method in today's market. If you have any more questions on the subject, you can contact myself directly or the Najib team. We'd love to help.
Image and data sourced from https://www.reinz.co.nz/residential-property-data-gallery