Are auctions going to end agent commissions?

by Jamie Henry10 Oct 2014
It’s Saturday morning in the city and on this one day alone 253 home auctions will see 81 per cent of those properties sold. Paperwork will be signed, and agents will have earned their commissions in a few short weeks. At two per cent, those commissions will be well below the Canadian average even though the agent has worked with both buyer and seller. This isn’t Toronto or Vancouver or any city in this country yet. It’s Sydney, Australia. But could this trend, starting to take root in Canada, destroy our industry?
 
It will fall to agents to actively point out the drawbacks of real estate auctions as they grow in popularity – a way of protecting their clients but also their industry, according to at least one agent.
 
“Most statistics indicate that sales prices are lower by auction than for a property that’s more extensively marketed by Realtors,” Paul Martin, the broker of record and owner of Coldwell Banker Settlement Realty, tells REP.
 
Since the auction process takes place over just a few hours, the property can’t be exposed to the market enough to generate a solid amount of interest. Plus, the weather could determine the turnout on auction day, resulting in fewer bids and a lower selling price.
 
“Exposure is what a Realtor brings to the table,” Martin says, “ensuring that the seller gets top dollar and the Realtor has exhausted all the marketing options.”
 
However, Dan Peters, the owner of Dan Peters Auctions & Appraisals, says auctions tend spur an energetic bidding war, skyrocketing the selling price of the property in the process.
 
“We certainly put more hype on the deal,” Peters says. “There’s more intensity and more hype than with a regular for sale sign.”
 
As Martin points out, there are also a number of issues with selling real estate via auction, most of those stemming from the REBBA exemption that auctions have. When using an auction house, sellers are not required to disclose any issues with the property like a Realtor would. As a result, many homeowners who choose to sell by way of an auction face liability issues following the sale.
 
Even Peters admits that auctions are not overseen by any regulatory body, but says he discloses any issues of which he knows. Buyers are invited to investigate the property and bring in a home inspector (at their own cost), though the properties are still sold as is in a cash-only deal with no conditions.

In the end, Martin says people will get what they pay for.
 
“In a more balanced market like now, it’s harder for real estate professionals to sell homes, and days on market are up,” he says. “So people think [auctions] are a faster process to get [a property] sold, and for some people that’s the main objective rather than getting it done properly.”
 
 

COMMENTS

  • by Robert Crowe 10/10/2014 2:40:40 PM

    I personally don't see this working except in cases of very desirable properties, or in a very heated market. In a normal market where properties generally take 30 - 90 days to sell when correctly priced, the auction will likely result in a lower price. Condos especially would attract low bids. It's the norm in some parts of the world, but it hasn't worked when tried here in Vancouver.

  • by 10/10/2014 2:46:32 PM

    In Florida where I do most of my work the properties that go to auction are generally those that would not sell on MLS after the buyers had opportunity to do due diligence. We had bargain hunting clients send us the auction listings of units we has ourselves inspected and thrown out.

    Same in Toronto they were trying to auction off units in the Trump building after nobody would buy them for months on MLS. Do not recall how that worked out.

    Why would anyone buy a house to live in in an auction environment with no real opportunity to view it. I guess you could have a showing period and then hold the auction but that is just like a different form of multiple offers that take place currently (ie. low list it and take offers on a given date).

    Why would you spend the money on a home inspection etc...for a house you were only going to be a bidder on at an auction. If you did not do the inspection how would you know what to bid ?

    To me the only reason why would you chose to buy a house this way but to get it at a discount that outweighed the risks involved.

  • by Yvonne - Richmond, B.C. 10/10/2014 8:51:26 PM

    The Auction system, amongst others, has been used in Australia for decades; it is nothing new to the Auzzie Real Estate landscape. Auctioning has been tried here, on the West Coast, by a few companies over the past few decades, but there just doesn't appear to be any taste for it by either the buying or selling public.
    At this point in time, I would be extremely surprised if the concept gained any ground in this province, unless someone came up with a very innovative and different approach to the concept.

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