Financial Implications for Australian Sellers
New research from UNSW Business School reveals that failed property auctions can significantly impact sellers financially, with homes selling for about 1.3 per cent less than similar properties sold by private treaty.n
In an analysis of over 480,000 transactions in New South Wales and Victoria from 2007 to 2019, the study found that failed auctions often lead to a loss of $9,000 to $10,000 based on average home prices in these regions.n
Dr Kristle Corte9s, Associate Professor at UNSW, noted, “What surprised me most was how little attention is paid to the prospect of failure in the selling process.”n
Factors Leading to Auction Failuren
Auction failures generally occur due to a gap between buyer offers and seller reserve prices. Sellers often set high reserve prices based on nearby property comparisons or outdated market conditions.n
The research highlighted factors such as bad weather on auction day and inexperienced agents as contributors to auction failures. Rainfall, for example, can deter bidders, increasing the likelihood of a failed auction.n
Dr Corte9s explained, “Auctions rightly fail due to low demand, but we also show that auctions fail less with more experienced selling agents.”n
Following a failed auction, properties often acquire a stigma, leading to further price reductions. Buyers might perceive that there is something wrong with the property, while sellers become more willing to accept lower offers.n
The research indicates that properties failing multiple auctions sell for an additional 1.8 per cent less compared to those failing once, with those attracting no bids receiving prices about 1.7 per cent lower.n
Despite these findings, the price penalty diminishes over time, becoming negligible after six months. However, not all sellers can afford to wait due to financial pressures or other commitments.n
Dr Corte9s advises, “Sellers should understand that auction failure is not rare, and it is not costless. The potential downside from failing can be larger than the upside from succeeding, especially in the short run.”n
The research, published in the Review of Finance, shows that successful auctions only offer a premium of about 0.7 per cent, translating to $2,000 to $2,500 more compared with private treaty sales.n
Although some auctions succeed, the net expected advantage is only 0.3 per cent after considering failure risks. This underscores the importance of choosing the right selling method.n
The study used data from more than 480,000 residential property transactions in NSW and Victoria. It specifically focused on properties that sold more than once, allowing researchers to compare sales outcomes.
