“The limited inventory, plus more buyers in the market, probably caused the additional price increases. Once interest rates rose a little bit, people became more cautious,” she added.
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These numbers only measure sellers who received an offer, declined it, and then moved on to auction.
They do not measure the outcomes of sellers who accepted an early bid or model the high price those sellers would have received had they decided to go to auction instead. If someone accepted an offer because it was a prominent price, there is no guarantee that other potential buyers would have bid that high on auction day.
Dr Peyman Khazar, senior lecturer in economics at RMIT, cautioned that every home is a heterogeneous entity, making it difficult to look at price premiums and conclude that auctions are a better option than private sales. The best sale depends on the home and the market situation, he said.
“[Auctions] “Open auctions are beneficial to sellers because in an open environment buyers compete with each other, and these auctions usually allow the highest value buyer to win the property, which translates into the highest possible price for the property,” he said.
“There is a downside to auctions when the market is not very hot, and you can’t attract enough buyers, or if the property is such that it will never attract enough buyers.”
He said herd behaviour can be evident when buyers upgrade their value if they see other buyers willing to pay more, but previous research has found that properties that did not sell at auction ended up being priced 2 to 3 per cent lower.
A previous study by Khazar found that sellers tend to win sales before the auction because they know what price they can expect to receive if they go ahead with the auction. For example, a seller who expects $1 million might accept an early bid of $1.1 million to cancel the auction rather than risk continuing with the auction.
More buyers can improve the outcome. For example, imagine there are only two buyers, one willing to pay $1 million, the other $1.1 million.
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In a private treaty, the second buyer would pay $1.1 million because he did not know what his competitor had bid. In an auction, the second buyer would pay little more than his competitor’s $1 million bid to win, leaving nearly $100,000 on the table.
But if there are multiple competing buyers, there’s a greater chance that one of them will have a budget of $1.09 million, pushing the price nearly to the ceiling, he said.
Buyers considering making an early offer should independently assess the property’s value based on comparable sales rather than relying on an agent’s price guide, said buyer’s agent Rich Harvey. Or use an appraiser or buyer’s agent.
It may depend on local market conditions, how many other potential buyers are interested, and whether sellers are committed to going to auction or concerned about the possibility of passing up.
“It’s a very emotional process, being at auction – it’s a high-pressure environment,” said the propertybuyer.com.au CEO.
“If you are going to bid before the auction, you must beat all other bids – you must be prepared to pay a fairly decent additional price.
“Sometimes I tell a client that there is no point in making an offer before the auction. All it will do is raise the reserve.”
