22 May Free farm auction criticised
By ADRIAN CHANG – BusinessDay
The “buy a tractor, get 20 acres for free” sale on Trade Me might be a great marketing gimmick, but it is treading on risky ground according to a real estate executive.
Gore-based couple Shelley and Allan Holland placed their International 574 tractor in a $1 reserve sale on Trade Me on Thursday 14 May and promised to also ceed the title to their 20-acre Catlins farm to the winning bidder.
The tractor-with-land auction closes at 10:30am on this Sunday and has so far attracted over 227,000 page views, 1000 questions and over 350 bids.
The property, with a government valuation of $260,000 is also currently listed with Harcourts for a sale price of $230,000. The leading bid as of 10:30am 21 May was $233,032.
Realestate.co.nz chief executive Alistair Helm said while he applauds the innovation in creating a means of generating so much interest, he had concerns which needed to be highlighted in case the practice took off.
However, Trade Me’s business manager Mike O’Donnell said Trade Me always ensured its customers were not misled and that Helm was simply frustrated Trade Me Property had 2.5 times more traffic than Realestate.co.nz.
Helm said the risk to buyers from this form of auction would be that the actual land transaction of the sale would not be legally enforceable because contracts for the sale of land must be in writing. That is why Trade Me does not auction land – it only lists land for sale.
The risk to sellers is that buyers are also not legally required to go through with the transaction, as would be the case in a Sale and Purchase Agreement.
“Sadly, it does occur from time to time on Trade Me that auctions are not completed after the auction has finished,” said Helm.
This made online auctions different from on-site auctions because on-site auctions were run by professionals who had legal contracts with the sellers and ensured all parties were aware of their obligations. Auctions could also be halted if problems arose.
“So whilst I am not intending to stand in the way of the progress of innovation in the marketing of real estate, I think it is important to bring some transparency to ensure that the hype surrounding what appears to be a ‘sure fire winner’ for all parties does not become a sad tale of future dreams crushed under the heavy burden of reality.”
Further, he said the success of the Trade Me auction lay with the novelty of the auction – not the auction itself. That meant any future auctions, especially those marketed as $1 reserves, were at risk of being less effective.
The fact that real estate had few buyers and sellers and that each property is unique made any form of property sale a complex and challenging process.
“It is for these reasons, not forgetting the scale of the financial considerations, that real estate purchases need to be carefully assessed. It is far too important to be left to the euphoria or hype of an online auction to sway the proceedings,” Helm said.
However, O’Donnell suggested Helm was suffering from “auction envy.”
But he acknowledged that vendors couldn’t legally sell properties through the auction site but said Trade Me took steps to ensure an informed bidding process.
“We do two things – we get something on the record in writing that the seller is committed to the whole sale at the highest price, then we put the legal statement on [the website auction listing] making it clear that technically a property cannot be sold through an online auction… that it is effectively just a pricing mechanism, not a sale mechanism,” said O’Donnell.
He said while the practice of “bundling” one auction in with other products was not uncommon on the site, this was the first time it had occurred with property.
Trade Me is owned by Fairfax Media, the parent company of Stuff.co.nz.