In Brisbane recently a no reserve auction caused an enormous amount of interest when it didn\u2019t sell despite some solid bidding.\u00a0 Surely a no reserve auction means that the property must be sold even if the highest bid is $1. So what happened and what are the pros and cons of a no reserve auction.<\/p>\n
Transcript:<\/b><\/p>\n
Kevin:<\/b>\u00a0 Well, here\u2019s a horror story for you. You may or may not have heard about the no-reserve auction in Chelmer, which wasn\u2019t quite a no-reserve auction. Let\u2019s find out about the intricacies of this. I\u2019m going to talk now to Justin Nickerson. Justin is a director of Apollo Auctions.<\/p>\n
Justin, thanks for your time. By the way, too, happy Easter.<\/p>\n
Justin:<\/b>\u00a0 Thank you very much, Kevin. Much appreciated. Likewise.<\/p>\n
Kevin<\/b>: First of all, tell me, a no-reserve auction, is it exactly what it says or it sounds like, and that is the house is going to be sold with absolutely no reserve?<\/p>\n
Justin<\/b>:\u00a0 Well, generally, yes is the short answer. Usually if it\u2019s been advertised as no reserve the owners are prepared to take a punt, so whatever the highest bid is on the day, that\u2019s the person who will end up owning the property.<\/p>\n
Kevin<\/b>:\u00a0 Have you ever done a no-reserve auction?<\/p>\n
Justin<\/b>: \u00a0I\u2019ve done two, Kevin. As a full-time auctioneer, I\u2019ve probably called a few thousand auctions in my lifetime and I\u2019ve only done two, and I haven\u2019t done any for a couple of years. It\u2019s very uncommon. Most sellers don\u2019t want to roll the dice and take that chance, but they do happen from time to time.<\/p>\n
Kevin<\/b>:\u00a0 The two that you\u2019ve done, tell me about them. Were they successful? In other words, what sort of price did they achieve?<\/p>\n
Justin<\/b>:\u00a0 One of them actually achieved what I\u2019d consider to be a premium in the market, really. One thing about no-reserve auctions generally is that they do attract a whole heap of buyers, and what we generally find with an auction \u2013 be it a no-reserve auction or a regular auction \u2013 the best auctions always have momentum.<\/p>\n
What you tend to find at no-reserve auctions is that they do get a bit of momentum of their own and they take off, and sometimes they do go past what most people would deem as being a fair market value or a reasonable market value. One of the no-reserve auctions I did certainly did that, and it probably sold at a premium. The other one probably sold, I guess, at figure that\u2019s roughly around that market-value figure.<\/p>\n
Kevin<\/b>: I guess that\u2019s the proof of what an auction is all about, and that is creating that competition. When you create the competition, you put people in an environment where they may spend more than they ordinarily would just to compete.<\/p>\n
Justin<\/b>:\u00a0 Yes, exactly. We always say there are two things, two ingredients, you need from a seller\u2019s point of view to get the best price that\u2019s out in the market. One is you need an emotional buye \u2013 someone who loves the property \u2013 and the second one is you need to place them in a competitive environment. That\u2019s what auctions are built around. It\u2019s built around \u201cI want this home and I can look across the yard or across the living room and see someone else is trying to take this home from me,\u201d and that\u2019s when you generally get the best results and the most competitive behavior.<\/p>\n
Kevin<\/b>:\u00a0 You said you\u2019ve done two. One you mentioned that sold at what you thought might have been a premium. What about the other one?<\/p>\n
Justin<\/b>:\u00a0 It probably sold roughly around market value, maybe slightly on the lighter side. It didn\u2019t have the same amount of registered bidders, and it certainly didn\u2019t have the same amount of people there on the day. It still had that very, very, good number, but the other one was a bit of a frenzy, whereas this one was probably a little bit more reserved. But it did get to a point where it\u2019s probably equitable to market value, anyway.<\/p>\n
Kevin<\/b>:\u00a0 Not a bad result, is it? Two auctions, one getting a premium price and the other one selling at fair market value. You\u2019d have to say the reason there probably aren\u2019t more no-reserve auctions is because, as you hinted at the start, sellers are just not willing to roll the dice.<\/p>\n
Justin<\/b>:\u00a0 Yes. It\u2019s a huge risk. I think every seller wants to get the best possible price, but they also want to mitigate as much risk as they can. Putting your property out there at the mercy of the buyers on the day without a safety net \u2013 which is your reserve price in essence \u2013 is probably not a feeling that sits well with most owners. I think that\u2019s the reason we don\u2019t do more of them. They\u2019re great fun for us as auctioneers. The marketing agents generally have a pretty good time, as well. But from the seller\u2019s point of view, it can be an incredibly stressful environment for them.<\/p>\n
Kevin<\/b>:\u00a0 The Office of Fair Trading are looking into that auction that I mentioned at the start, the one in Chelmer. Despite the bidding reaching $640,000 the property was passed in. From what you\u2019re telling me and from what I know, that shouldn\u2019t have happened. The property should have been knocked down for $640,000, shouldn\u2019t it?<\/p>\n
Justin<\/b>:\u00a0 The short answer is yes. The long answer is\u2026 Look, obviously, the Office of Fair Trading do their enquiries, and I wasn\u2019t at the auction. I only know whatever everyone else knows, which is what the articles that have appeared there have said.<\/p>\n
One of the key terms and conditions in the Conditions of Auction here in Queensland is that the property is offered subject to a reserve price and the seller\u2019s approval. That plays a really significant role in this case here, where if you read that to the essence of the law, it\u2019s offered subject to a reserve price \u2013 which is not in play \u2013 but it\u2019s also offered subject to the seller\u2019s approval.<\/p>\n
Now, if the seller hasn\u2019t granted approval to sell the property at $640,000, by the absolute wording of the legislation, you can\u2019t sell the property. I understand the agent, the auctioneer, the principal, and the seller were all the same person, which blurs the lines, as well. But in that case there, that\u2019s the protection I guess you\u2019ve got under the terms and conditions of auction.<\/p>\n
What we see, I guess, on most weekends and anyone who\u2019d been to an auction will know there\u2019s always someone in the crowd who yells out \u201cAre we on the market?\u201d question. As an auctioneer, it\u2019s actually not a question you can answer because of the fact that even if you are past that reserve price, without seeking the seller\u2019s approval, legally by the absolute lettering of those terms and conditions, you can\u2019t put the property on the market without that permission, anyway.<\/p>\n
Kevin<\/b>:\u00a0 I\u2019ve quite often seen properties knocked down where they owner hasn\u2019t been referred to because the reserve has been met and exceeded. Are you saying that that could even be challenged once the auctioneer knocks it down?<\/p>\n
Justin<\/b>:\u00a0 I\u2019m saying best practice, Kevin, under the terms and conditions of auction is that they should always confer with the seller for their instructions, because again, the wording is very, very, clear. It\u2019s offered subject to reserve price and<\/i> the seller\u2019s approval. It\u2019s not \u201cor<\/i> the seller\u2019s approval\u201d; it\u2019s \u201cand<\/i> the seller\u2019s approval,\u201d meaning if you don\u2019t have both of those things prior to selling a property, if the seller did get upset for whatever reason or they felt they were pressured or whatever it may be on the day, potentially you open yourself up and you could be challenged there.<\/p>\n
Kevin<\/b>:\u00a0 Not wanting to split hairs here, but if we go back to those terms and conditions subject to a reserve, surely if it\u2019s a no-reserve auction wouldn\u2019t the reserve be $0?<\/p>\n
Justin<\/b>:\u00a0 Yes, that\u2019s correct. There is a difference between not having a reserve and having a reserve that\u2019s basically $0. In essence, if w don\u2019t have a signed reserve form, we can\u2019t start the auction, because the seller hasn\u2019t set a reserve. If it is a no-reserve auction, then generally that reserve should be written as $0.<\/p>\n
But again, I don\u2019t think that takes away the fact that the second part of that is pretty clear in that you need to seek the seller\u2019s approval prior to selling the property. But again, like a no-reserve auction, that line becomes incredibly blurred and you get a scenario like happened on the weekend where it\u2019s left up to greater legal minds than mine and everyone else\u2019s is to decide what is appropriate and what should have happened in that case.<\/p>\n
Kevin<\/b>:\u00a0 Still on that auction in Chelmer, a number of people are concerned and expressing some concern about the fact that they didn\u2019t know that the principal of the office who actually also was the auctioneer was the owner of the property, and that wasn\u2019t disclosed until later. Does the selling agent have to disclose that they are also the owner of the property. Is there a requirement for them to do that?<\/p>\n
Justin:<\/b> \u00a0There\u2019s not a legal requirement, no. Again, a lot of this stuff, Kevin, as you know is a legal requirement and then a moral requirement. I always think it\u2019s in your best interests to disclose it. If you\u2019re as transparent as you can be with the buyer throughout this process, I think it ends up having a better result and a better relationship at the end. They don\u2019t need to disclose that. If they\u2019re buying the property, there certainly needs to be disclosure made there, but on the selleing side, that doesn\u2019t have to legally take place. But again, if you come back to what is the best thing to do, I think the best thing to do in most cases is definitely to declare it.<\/p>\n
Kevin<\/b>:\u00a0 Justin Nickerson, a director of Apollo Auctions, a professional auctioneer does it all the time, and he knows what he\u2019s talking about.<\/p>\n
Justin, thanks for your time.<\/p>\n
Justin<\/b>:\u00a0 My pleasure. Thank you, Kevin.<\/p>\n
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