Agents given hammering on auctions

Mortgage adviser calls for greater transparency around use of more expensive sales method. reports

Afinancial adviser is questioning the motives of real estate agents who continue to list homes for sale by auction, even as buyer interest falls and house prices head down.

Auckland mortgage and insurance adviser Rod Schubert suggests agents push clients and vendors into auctions because agents are “rewarded” with a higher internal commission split when they sell at auction. Agents dispute that, saying auctions are a useful tool and harder work than simply listing a home.

Schubert said the vendor pays the same commission component, but there are optional fees paid to the auctioneer.

“Where the house goes to auction,

the agent will receive a bigger cut from commission paid to the agency, and that’s a conflict of interest that needs to be explained — not just in fine print — as consumers need to know the agent may have a vested interest in recommending the auction process over negotiation.”

He wants to see tighter regulations to make realtors accountable for opting for auctions, which are a more expensive method of selling.

Schubert said because the auction process was unconditional, it ramped up upfront costs for firsthome and other buyers. They could be paying more than $2000 for building reports and independent valuations demanded by the mortgage lender even before the bidding.

Schubert said real estate agents should have to do due diligence and say why they were going to auction.

He said the “bit they won’t admit” was that realtors spent less time on auctions.

“At its base, reverting to auction is simply about increasing their hourly rate.”

Tim Kearins, owner of Century 21 NZ, disputes that.

“Auction is a tool that encourages the agent to focus on the property alone, and within 30 days, for the agent to chase up with all buyers and create competition on the day. So, in reality, it’s harder work than simply listing a home.”

However, Kearins accepts that, as a method of selling, it “doesn’t suit every seller” because they are forced to meet the market.

The general argument in favour of auctions is that they generate “tension” (bidding wars). However, Schubert said that realistically only

applied to homes with a unique selling proposition, where auctions could be useful to set a market price.

Schubert, however, suggests there’s no reason to adopt auctions as the default way of selling a “stock standard” property, where the house can easily be compared to other sales.

Instead, proper marketing and negotiation would open up the market to buyers who might be put off by, or nervous about, an auction.

Latest data from property analytics firm Corelogic shows national housing values dipped 2.3 per cent in the last three months, the biggest quarterly fall since February 2009 in the direct wake of the GFC (global financial crisis).

There’s been an immediate impact on auction sales, with overall unconditional sales under the hammer trundling back to June 2020 levels.

Real Estate Institute of NZ (Reinz) numbers show there were 606 sales under the hammer last month nationwide, about one in 10 sales, down from 14.6 per cent in April and well off the 27 per cent of sales last June.

The drop is even more acute in Auckland, where sales by auction fell to 17.6 per cent by May, down from 44.5 per cent, or almost half of sales, a year before.

Sam Steele, lead auctioneer with Ray White NZ, said about a quarter of its sales were done by auction, with clearance rates about 45 per cent nationwide last month.

The company, which employs about 30 auctioneers across in 192 NZ offices, had 1042 sales overall last month. The firm quotes higher auction numbers in Australia, about 29 per cent of its 4777 unconditional sales for June.

Steele said the market had come off its highs of the past few years, but it was more about the market “going back to normal”, and vendors needed to be flexible on their price.

Even in that market, he said Ray White’s data over the past quarter showed that vendors were twice as likely to get their property sold if it was taken to auction.

Corelogic head of research Nick Goodall said auctions were ebbing as a way of selling. “We’re seeing more prices put on properties upfront, using that as a marketing tool to create multiple buyers and create a level of competition that otherwise would have been in the auction room.”