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‘Significant risks’: When auctions work and tips for listing property

Auctions can drive up the price of a property, but there are risks too, experts warn.

Auctions can drive up the price of a property, but there are risks too, experts warn. Photo: Getty

More Australians are listing their homes for sale in a bid to cash in on rising property prices, but many face tough choices when deciding what type of sale to pursue.

Auctions offer the potential for huge returns, particularly if there’s lots of buyer interest, but there are also huge risks if the property doesn’t sell and plenty of mistakes sellers can make.

So, what do the experts say about listing your home for auction, and how to avoid pitfalls?

Is your home right for auction?

Alex Haddad, a property agent at EXP Australia and accredited auctioneer, said the first thing home owners need to consider is whether their property is even right for an auction.

He said auctions can deliver superior returns, but they’re designed to capitalise on interest in the most in-demand properties and can sting people who aren’t prepared.

“Auctions only work in certain areas and for certain properties,” Haddad said, such as “freestanding homes in areas of high growth like the inner west of Sydney”.

Enrique Bisbal, a consultant with Refined Real Estate, agreed that auctions are best for properties in high demand markets that are “hard to value” because the home is unique.

“They create a sense of urgency and competition among buyers,” he said.

Beware the costs

The risk if your home isn’t suitable for an auction is that it gets passed in, and you get stuck with thousands of dollars in fees without a sale to recoup the investment.

“Vendors can get stuck with huge marketing costs and expenses,” Haddad warned.

James Millard, a financial advisor, said Australians need to have a plan for selling their property at auction to avoid getting caught out by unseen costs.

“We’re talking transactions which are some of the biggest you’ll ever do,” Millard said.

“There are always significant risks with that.”

Besides merely paying an auctioneer just to show up – which can cost upwards of $1000 – home owners also face huge costs preparing their home for sale, Millard said.

“You might be up for somewhere between $2000 and $6000 just preparing,” he said.

“You’re painting, you get the handyman over to tidy up those things you lived with that didn’t look great … then you’ve got the photographer which is critical for selling a home.”

These things should be seen as an investment in a successful auction, but also need to be budgeted for so that you’re not left in the lurch in the event that the auction is unsuccessful.

Improve your chances

If you do decide to go to auction, then you’ll want to make sure you make the most of it.

It goes without saying that this starts with how the property looks to potential buyers, but Haddad says too many sellers forget the details, including how their front garden is styled.

“If the garden looks shocking, people tend to back off,” he said.

John Pidgeon, author of Sort Your Property Out, said the other major priority for sellers should be marketing their auction “like a pro” and staying on their agent to do the same.

“Online listings, social media, and good ol’ fashioned signage will attract buyers,” he said.

“Provide all the details. Make sure your listings are clear and informative, with killer photos and maybe even virtual tours.”

Reserve price tips

The other major consideration when taking a home to auction is where to set your reserve price.

Too high and you risk the home being passed in, but too low and you could potentially make it harder for your agent and auctioneer to get the best price for your property.

Haddad said sellers need to be “realistic” with their price and avoid setting it too high because if the auction fails the subsequent private bids are more likely to be “low ball”.

One way to work out where a reasonable reserve might be could be listing your home on the market first and seeing what offers it attracts, and how many.

That can give you and your agent an idea of what the market is prepared to pay, guiding any decisions about what a reasonable reserve is.

Topics: Property
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