It seems it is currently trendy to blame auctions for the housing market.
This has been going on a while. Even the Reserve Bank Governor’s stuck his oar in, and we’ve just had the latest instalment hit the news today.
A house hunter in Taupō is upset at ‘proof’ of the ‘blatant psychological manipulation’ at auctions.
Jennifer Stillman is complaining about marketing material sent to her by Bayleys which openly talks about the fact that auctions create psychological pressures that lead to higher and higher bidding.
The marketing material quotes Harvard study which found bidders competing at auction are more likely to bid “past a pre-determined threshold” and “bidders reported feelings that ranged from exhilaration to agitation, said to fuel an increasing desire to perform beyond reasonable limits and secure the reward they were so badly seeking”.
What’s the problem with this information?
Anyone who’s been to an auction understands this is how it works. You want the house; you bid enough to beat the other guys. And if they attach a value to it greater than you have, you are forced to reconsider your own valuation and maybe adjust upwards.
Is that manipulation? I don’t think it is, because the word manipulation implies dishonesty.
In fact, auctions are the complete opposite of dishonesty. You know exactly what everyone else is bidding, therefore you have full transparency.
You don’t like auctions? Try a closed tender where you really have no idea what the other people bidding against you are offering.
I think this ongoing criticism of auctions comes from a lack of understanding on a couple of fronts.
Firstly, auctions don’t necessarily cause a hot housing market; they are the function of a hot housing market. You won’t see many if any auctions in a flat or cooling market. Agents only really recommend them when loads of people are interested in one property.
Secondly, estate agents don’t work for buyers. They work for sellers. It’s not their job to make sure the buyer gets the best deal; it’s their job to get the best price for the seller. So, if they create a competitive bidding environment they are literally doing their job.
As long as we have more people wanting to buy houses than we have houses for sale, they will probably be around.
So if you are a prospective house buyer and you don’t like auctions, just don’t go to them. Buy off the plans, buy through closed tenders, negotiate on unpopular houses. No one’s forcing anyone to put their hand up at auction.