We look behind the scenes of an auction to discover how auctioneers prepare for an auction, how they structure the call and what tactics they use to get a sale. Auctioneer David Holmes joins us.
Kevin: This week in the show, I want to take you behind the scenes. How does an auctioneer structure an auction? Who are you up against when you’re going to buy at an auction? And to help me with this dialogue and with this understanding, David Holmes from Metro Auctions joins me.
Good morning, David.
David: Good morning, Kevin. Great to be here.
Kevin: David, one of the things that I’ve noticed about the auctioneers who I’ve met – and I’ve been an auctioneer myself – is that adrenaline rush that they get. I guess in a way, they’re not putting on an act but they’re on stage, so they really have to put on a bit of a performance, don’t they?
David: Most definitely. Our job is to either make the property sell or to make it more saleable, and we have a duty of care to the vendors there to sell the property, to speak of all its very positive attributes, and to engage the crowd and to make them want to buy. The best part about an auction, obviously, is competitive bidding, even in an oversupply situation.
Kevin: But you have to get the people there to bid, and that’s always the difficult part.
David: Yes, most definitely. It has a sense of urgency around it, I think, especially in an oversupply situation. You’re putting a date on the sale, so the control of the transaction is back in the hands of the seller or the vendor. They’re actually saying that they want to sell on a particular date, at a particular time, via their particular terms. So even though there might be fewer buyers, those buyers are still flushed out to that particular date and forced to act or forced to play on that day or soon after.
Kevin: In an oversupply situation, you can’t take away from the fact that if there’s a big choice, someone is going to say, “Well, that’s okay; that can go to auction but I have a big choice. I’ll just go along and see what happens.” Or do you find that a good agent’s going to make the difference in getting people to bid?
David: Absolutely. A good agent is going to engage buyers and get them there on the day. We still see that in South East Queensland, a property that has gone through an auction process has significantly less days on market than a property that has just been marketed via a price. So no-price marketing – i.e. auction or tender – is still going to yield a better result – especially auction – by far less days on market.
Again, it flushes out people to a date. And even if they’re unable to purchase under auction conditions on the day, we see a lot of transactions happening in those 14 days directly after an auction.
Kevin: There’s no doubt – I’m not questioning at all what you said, because I know it’s true – that an auction will sell faster than a property marketed at a price, and I sometimes wonder whether that’s because the pressure comes back onto the agent. They have the timeframe. I know we talked there about the buyers; there’s a deadline for the sale, which is the auction date. But by the same token – having been an agent and run auctions – there’s a lot more pressure in running an auction campaign than there is for one that has a price on it.
David: Yes, absolutely. But I think at the end of the day, the vendors then have an overwhelming weight of information. Perhaps they’ve had some offers prior to auction day. Perhaps there was some active bidding on the day and maybe it still didn’t sell or even if it got passed in. But again, it’s flushed out some buyers to that date.
Yes, there’s pressure – I understand – on the agent, but then you actually have some ready, qualified, buyers who have actually fronted up on the day, said that they can bid to buy, and then you can continue working with those buyers in the coming days and likely get a deal done.
Kevin: It must be frustrating for you as an auctioneer working with agents who just simply don’t understand how to work the auction system and get the buyers there. They think, “Oh well, all the magic’s going to happen on the day of the auction. It’s all up to the auctioneer. Pull that rabbit out of your hat and let’s see what you can do.”
David: It would be easy if I drove around with a courtesy bus full of buyers at every auction. There is pressure, and a good agent knows how to engage the buyers, knows how to get them there on auction day, has the correct dialogue, and also follows a process by which to get those buyers there.
Kevin: Has it made it harder for you not being able to take bids off trees and people who aren’t there?
David: Low-flying birds and moving trees and leaves flying through, yes. At the end of the day, I think it’s probably become a more transparent process. In the interests of trust and reputation, I think that’s a very, very key thing. Clarity and transparency for our buying public is very important.
The ability to use vendor bids – which is I guess what you’re aiming at now, and they have to be disclosed – I should think is a very positive thing. We probably refer to them sometimes more as momentum bids.
Kevin: Dummy bids.
David: Well, momentum bids. We declare the vendor bids, Kevin. It’s not like the old days. What you’re actually doing is you’re actually saying, “Hey guys. You’re getting closer to the zone.” This is a very clear indication, a signpost on the road of negotiation, if you will, as to where you might be able to purchase the property. We’re going to give you a very clear indication where you need to go.
Kevin: That’s the key thing isn’t it? You’re not going to be able to buy it under the reserve unless the auction is stopped and the reserve is lowered. Therefore those vendor bids – or those momentum bids, as you call them – are fairly irrelevant in terms of their importance to the buyers. It’s an indication to the buyer that you’re not going to be able to buy it at that figure, so come on, let’s start negotiating. That’s what it’s all about, isn’t it?
David: Absolutely. It would be no different to me under a price-marketed property, stopping and having a chat to the buyer who might have put in their initial offer and me coming back saying, “Actually you’re not going to buy it at that price. Here’s the counteroffer from the vendor.” Although obviously we’re not revealing the reserve price, of course, but just going back in that argy-bargy process of negotiation and then finally nutting out the deal.
Kevin: Does the auctioneer have that much influence on the day? And how much skill is required to actually get the property sold? Because if you have no bidders there, you’re not going to sell it, are you?
David: Absolutely. If there are no bidders there, we have a tough road ahead, and if there’s no crowd there, obviously. We always talk about three potential outcomes – the possibility that I’m standing there with the agent and there’s no one else, which is not great, the possibility that we sell well over reserve with plenty of competitive bidding and plenty of registered bidders, which is the ideal scenario, but oftentimes, we’re left in a place where we have to do a little bit of extra negotiation – we have some registered bidders, we have a decent crowd, but we just don’t get to where we need to go.
Kevin: Is this when you stop the auction?
David: Yes. We’ll often pause the auction. I think a misconception is that an auctioneer firstly speaks very quickly – that’s not necessarily true – and that an auction has to happen very quickly.
At the end of the day, you have a lot of energy and excitement in the first part of the auction, so you’re wanting to get as much competitive bidding going and getting those juices flowing as early on as possible. But at the end of the day, we’re there to negotiate the highest price. Our charter is very clear. We’re there to get the highest price for the vendor. If that takes 10 minutes or if it takes 30 minutes, we need to be able to pause the auction and use the tools that are available to us in order that we can negotiate that highest price.
Kevin: What do you do, though, if you open an auction and you know there are some bidders there but they’re not bidding? What sort of a strategy do you use to get them to bid?
David: I actually sort of plead with them. I just absolutely beg. No, I don’t. But let’s be honest, we watch the TV shows where the auctioneer calls for that opening bid or offer and there’s a Mexican wave of bids; it’s crazy. I can tell you that it’s very different to that. In fact, possibly probably part of the hardest part of our job is getting that first bid away. So oftentimes, we will often put a bid in or suggest a range at which people might start bidding. Once we have that first bid away, we often find that prompts other people.
We’ve probably had years and years or decades where we’ve just held back a little bit and there’s just a culture of “I’m not going to bid at auction; I’m just going to see what happens.” That’s not a great strategy. A buyer needs to turn up and say, “I’m going to put my best foot forward. I’m going to put my stamp on proceedings. I’m going to put a bid forward.”
There was an independent auctioneer company who actually did a study, and those people who put the first bid forward in just under 70% of the cases were actually holding the keys at the end of the day.
It is a 20-second burst of courage. You do need to have that boldness to put that first bid through. But as I said, most of us like what the rest of us like. Once you know and you have that confidence, you’re probably more likely to bid.
Kevin: It certainly doesn’t hurt to have an understanding about how the whole process works, does it? That’s why we say time and time again if you are going to bid at auction, make sure you go along, get to understand how the auctioneer works, understand how the auction process works, and if you’re not really happy with it, then maybe you should engage a buyer’s agent to help you.