Friday, August 13, 2010

House auction in Australia

I attended a couple of house actions this morning to see how hot or cool the property market is now. The first house attracted no bidder, opening at $780k. This house is very old, so it is probably targeted at someone who has in mind to build a new house on the 771 sq m of land. At the peak, this would have easily sold above $800k. The second house (in a different suburb) is only 5 years old, single storeyed, and in a very modern neighborhood. This house attracted 3 bidders, and was finally passed in at $640k. It was not sold under the hammer, as the owner had in mind a higher reserved price.

What do I make of this? Well, the market has certainly cooled a lot, with the noticeable absence of mainland Chinese bidders. So it is true that the governments previous policy of allowing foreigners to buy into the market did create an unrealistically strong demand and a huge inflation in house prices.

What hasn't change is the way house auctions are conducted. It is all to the advantage of the seller, and indirectly, the estate agents (who benefit from playing up the market). First of all, I have noticed that while the auctioneer tries to induce people to bid up the price, the buyer is not told at which price the owner is willing to sell. The impression given is that if you are the last bidder, common sense tells you that you have won the bid. Isn't that how auctions are supposed to go? But no, the auctioneer will hang on to the last bid, and then go and talk to the owner. Then he will come back to say if the house is "on the market". If it is, the bidding continues from that level.

In the case of the second auction I attended today, the three bidders were genuinely bidding against one another in good faith and at reasonable price level. Yet in the end, the final bidder did not get the house, but only got the "first right" to talk to the owner to further negotiate. I think the auction rules ought to be re-written.

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