It's an Auction--Kiwi Style

It's May, winter is approaching, and the auctioneer is calling for bids

February 1, 1996

It's 11:45 a.m. in Christchurch, New Zealand, on a sunny fall day in May. People are starting to gather on the front lawn of 40 Glendovey Ave. A few others are touring the home or rose garden. Most are here to participate in the auction of this property, located in the prestigious Fendelton neighborhood.

At the curb, a maroon banner flaps in the autumn breeze, proclaiming the news---AUCTION. The auctioneer and his staff visit attentively with the crowd, answering questions about the property and explaining how the auction process works (though most serious bidders have already seen the property and lined up financing). Word is circulated that the auction will be delayed until another bidder arrives.

Costs Jump but So May Price

If you've used the auction method to sell properties, you may be interested in learning how auctions work in another part of the world. In New Zealand, the process is not so different. What's different perhaps is the acceptance of auctions: they're not used just for the distressed or unusual properties. As the 40 Glendovey auction shows, an auction may be the marketing method of choice for residential sellers who want maximum exposure and demand for their home.

When properties go on the market in New Zealand, they're most often sold using the traditional method also used in the United States. When an auction is used, it usually means higher up-front costs for the owners. The up-front advertising fee most New Zealanders pay to sell their home will typically double with an auction (in U.S. dollars, jumping from $250-$500 to $500-$1,000) to reflect the need to publicize the auction. That's in addition to the broker's commission that vendors (sellers) pay.

Of course, auctions can dramatically reduce marketing time and the holding costs. And depending on the property, the results may be worth the price. Recently, I studied auction performance in Christchurch and found that homes in the most expensive areas of the city sold at a premium when auctioned. In moderately priced neighborhoods, I saw no difference.

In 17 Minutes, Our Hero Brings in a Sale

Back at 40 Glendovey Ave., it's noon, and the auctioneer rings a bell to gather the bidders. He reviews the terms and conditions of the auction and asks whether anyone has questions. No one dares raise a hand---"One false move . . . ," as they say. Finally, the auctioneer asks for an opening bid. After a long pause, the bid is placed at $NZ 180,000about $U.S. 90,000. In seconds, the bidding progresses . . . 200 . . . 220 . . . 240 . . . 260 . . . then silence.

The auctioneer says he wants to consult with the vendor. In less than two minutes, he returns to report that the property will be sold today. He reopens the bid at $260,000, but no amount of cajoling will bring a higher offer. "Going once . . . twice . . . sold." The gavel comes down with a loud crack. "Sold for $260,000."

The time is 12:17 p.m.

Mark Dotzour is associate professor of real estate at Wichita State University, Wichita, KS 67260-0088; 316/689-3219. His coauthors were Kent Prier, principal, and Heather McCallum, general manager and auction coordinator of Kent Prier Real Estate Ltd., Christchurch, New Zealand.

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