Shift away from auctions ‘hands power to buyers’

Quiet months spur rise in negotiated sales but expert warns prices may suffer

There has been a rise in Aucklanders selling their homes as price by negotiation rather than auction, according to the latest QV analysis of the city’s property market.

But a leading real estate expert says the sales method could lead to lower prices and put sellers at a disadvantage.

QV reports that the number of properties coming to market as price by negotiation has grown in popularity in the 12 months to August this year, while REINZ figures show that auctions in Auckland slipped from 24 per cent in July 2017 to 21 per cent in July this year.

The latest QV figures show property values in the city have softened over the last 12 months, growing just 0.7 per cent to an average of $1,048,956, but dropping 0.4 per cent in the last quarter.

QV Auckland senior consultant James Steele said the drop in buyer activity over winter had forced sellers to adjust price expectations and negotiate in order to get a sale.

“Price by negotiation is strongest in less desirable properties or those with irregular features,” he said.

Properties that were poorly presented or had other issues experienced the biggest drop since the market peak, he said.

“Well-presented properties which offer a good family living environment or those which have straightforward development potential are still transacting at reasonable levels, however demand is patchy.”

Property information company CoreLogic NZ said auctions were previously the dominant sales method in Auckland — accounting for 50 to 60 per cent of the market during market peak — but this has dropped to below 25 per cent, with “offers” picking up the slack. However, they are viewed by the industry as a key indicator of market activity in the city.

Harcourts auctioneer Aaron Davis said a shift away from auctions could put sellers at a disadvantage.

“Vendors looking to achieve a good price have a four to five-week window in which to sell their property. The longer their property is on the market, the more likely it is to [fall] in price. It also puts power in the hands of the buyer,” he said.

“Properties that have problems will still have those problems no matter the method of sale. You can’t dodge those issues by choosing price by negotiation over auction.”

Although clearance rates have been down in the city, Davis said the figures did not tell the full story.

“Clearance rates show what happened on auction day. However, a large percentage of properties passed in do sell within a few days of the auction date — and usually to those who have attended the auction. An auction shows vendors where the market is and can help them on price,” he said.

QV said that nationwide residential property values had increased steadily over the past year by 4.8 per cent although fell by 1.6 per cent in the three months to August.

QV general manager David Nagel said: “Affordability constraints continue to change buyer behaviour. We’re seeing an increase in demand for more affordable two-bedroom semi-detached units as well as apartments, particularly in our main centres. With population growth projected to continue to rise, I’d anticipate these types of properties will attract even more demand in future years, particularly in Auckland and Wellington.”

Steele said the fall in investor activity had “opened up space for first-home buyers in the entry-level market, with properties readily available under $650,000 in previously investor-driven areas”.

“As we enter spring, those who have been waiting out winter before putting their properties to market are starting to appear. However, given that there are still few external pressures on buyers to sell, it is unlikely that we are going to see an oversupply of listings,” he said.

Loan Market mortgage adviser Megin Wilton told the Herald she had seen a trend in first-home buyers avoiding auctions.

“The main reason is that they don’t want to be paying for a building inspection, a registered valuation, pay a solicitor to look over the sale, purchase agreement and the LIM (Land Information Memorandum report),” Wilton said. “Firsthome buyers don’t really have [that many] surplus funds to be throwing away without any guarantee they’re going to get the property.”