EG Auction Column: Remove the games to help the auctions market grow
By Stephen McCarthy, BidX1 founder and CEO
Auctions are an efficient, well established and - among a core group - popular way to buy and sell property in the United Kingdom. But the auctions world is also a rarified one which can seem closed and even intimidating to outsiders, when it could become so much more mainstream.
Today I want to talk about how the auctions world could become more user-friendly, and appeal to a wider audience of buyers and sellers.
I also want to talk about increasing transparency in a way that would help the UK auctions market to double or even treble the £4.5 billion that was traded in 2018.
And I want to discuss how we as auctioneers can future-proof ourselves in an increasingly transparent and accountable world, particularly as our big fund management, private equity and property company clients are under increasing pressure to examine how they do business themselves.
To open up auctions to a wider market we need the process to be more transparent. Buyers need to have a good auction experience, they need to talk about it and start to change the mindset of the wider public.
The people who have a good experience of buying at auction will become the people who want to sell, creating a virtuous circle and creating an avenue for growth.
But to create this transparency we believe that some auction practices need to be stamped out.
Over the last 10 years the auctions world has been slowly eroded by worsening practices as competition increases for broadly the same level of business – again a function of the auctions market not growing as it should.
One practice is “baiting” the market with low guide prices. Despite grumblings among auctioneers this still goes on and is somehow justified by auctioneers who raise the reserve price and the guide price at the last minute having falsely excited the interest of bidders.
This sends a very poor message to the market.
Another practice is “bidding off the wall”, where an auctioneer bids on behalf of the vendor by literally pointing the hammer at the wall or a corner of the room and pretending there has been a bid.
Bidding off the wall is technically allowed when there is a single bidder below the reserve price and frowned upon when there are no bidders at all.
Yet the small print will typically say something like “where there is a reserve price the seller may bid (or ask us to bid on the seller’s behalf) up to the reserve price…you accept that it is possible that all bids up to the reserve price are made by and on behalf of the seller.”
Auctioneers regularly take consecutive bids off the wall, stopping just below the reserve, at which point the property doesn’t sell. This price is then published as a `last bid’ when in fact there were no genuine bids at all, misleading not only people who may want to bid again for that property but also the vendor, who has no clarity of where the market price is.
This can’t be right, particularly when there is increasing scrutiny of property values, with auctions regularly coming under the microscope.
At BidX1, where we only run digital auctions, we don’t engage in bidding off the wall.
We don’t agree with the concept because our whole system is based on transparency and data, allowing us to know who has bid, by what increment they increased their bid, what their last bid was and crucially, the full details of all bidders for all lots.
This allows us to accurately feed back to our clients what their properties were worth, and the genuine level of interest. There is no need to try to confuse the market by “puffing” the price.
We could call for the RICS to regulate these unseemly activities, but why shouldn’t auctioneers voluntarily agree to stop engaging in them for the greater good of all their businesses?
How many auction room buyers – in particular, novices visiting the auction room for the first time – really know about “bating” or “bidding off the wall”? How many fund manager vendors would be happy with this, when they are increasingly reliant on the most accurate data?
And in the social media era, what happens if an auctions scandal unfolds, as has been the case in other countries in recent years?
There cannot be a UK auctioneer who doesn’t want the auctions market to grow. But unless poor practices are stopped auctions will forever be a small world.
At BidX1 we would love to hear your views.
Read the Estates Gazette article here.