Reject tired old auction antics without reserve
IN 2006 I conducted a valuation experiment on five top-end homes which were going for sale by auction – then the preferred process for the disposal of high-brow abodes.
So I walked down Dublin's Wexford Street and Camden Street and recruited five volunteer "valuers".
They were Hugh Morrissey, a butcher who ran his own shop on Wexford Street; Rose Draper, the fourth generation of Draper women to sell fruit from her market stall at Camden Street; Catherine Gunn, then working at her father's long- established camera shop, and Barney Lynch and his wife Mary, who sold quality suits from the outlet founded by Barney's grandfather in 1936.
All experts in their fields, none of my panel had any experience valuing property. But that was the whole point.
So I asked them to value five multi-million euro homes in Enniskerry, Sandymount, Rathgar, Foxrock and Bray – all of which were going to auction in the following weeks.
Against their valuations I pitched the stated pre-auction AMV's (Advised Minimum Values) – issued by the big name professional auctioneering firms hired to sell those properties. The AMV's were the value guides for those attending the auctions.
All five homes went to auction and all sold on the day – for prices ranging between €1.6m and €9.5m.
But my panel's valuations beat the professionally estimated AMV's for accuracy in four out of five cases despite the professionals being paid €15,000 to €60,000 plus per property for their services.
In fact, on average their AMVs were 50.4pc off target and all were grossly underestimated.
Without disrespect to my panel of volunteers, you could have picked random values for those homes from a hat and still managed to beat the professional's pre-auction AMV's for accuracy.
One of the five homes we valued was estimated to be worth €5.5m prior to the auction by a well known agency, but it actually sold for €9.5m on the day.
My experiment was of course designed to highlight the extent by which auctioneers were deliberately undervaluing the homes they were offering for sale in order to pull crowds – to put bums on seats on auction day in what amounted to a profession-wide exercise in dishonesty and exploitation of the home-buying public.
Aspiring auction buyers who were regularly fooled into attending the auction because they believed they were in with a shout had usually shelled out thousands for a survey and a title check before bidding – often to see the property declared "on the market" at a price way above their intended spend.
For 12 years until the market crash, value estimates for auctions had steadily become more and more ridiculous until, by 2006, it was not uncommon for a house to sell for twice its AMV.
The crash killed high-end auctions and with them this cynical guideline game.
Today as the market recovers, buyers are once again competing hard for middle and top end homes in Dublin and auction sales are once again starting to breaking out at the top end of the market.
And the nonsense has already started – the sale prices of some properties to go under the hammer recently have already exceeded their pre-auction AMV's by ridiculous boom-era amounts. I am aware of at least one which exceeded it by 100pc.
The rot has to be stopped before it takes root.
Here's how: home hunters should avoid attending the auction of any home which doesn't carry a disclosed reserve – the pre-disclosed lowest amount which a vendor will accept for the property on the day.
The crash years brought us Allsop Space and from the UK a disclosed reserve system which was at last transparent and fair to all. Anyone who attends an Allsop Space auction knows exactly where they stand prior to auction. Some other agents have adapted it, but some have not.
Disclosed reserves prevent potential buyers being codded into attending an auction in which they'll spend thousands to attend but will end up being nothing more than an unwitting attendance gimp lured to inflate the crowd and the pressure cooker atmosphere.
We saw it pre-2008 – an AMV means nothing – it isn't binding and can be conveniently raised right before the auction takes place.
The price to be paid for attending reserve-free auctions is a bill for thousands incurred for every useless auction attendance.
So without reserves, don't play their game.