Real Estate Auctions

There is a lot of curiosity and unknowns around real estate that sells via auction. Auctions are often seen as a place for desperate sellers and bank-owned properties. Let's cut right to some details.

Reasons that home sellers choose to put their house up for sale via auction:

• A home auction attracts serious buyers
• You know the exact date your home will sell
• There’s no ceiling in a competitive market
• Save time and money in a slow market

Cautionary things to review when putting our home for sale via auction:

• What is the auction fee and who pays it?
• Does the company adequately advertise the auctions to the broadest possible audience?
• Does the auction company specialize in properties like yours and your location?
• What paperwork is involved and who ensures the property is securely paid for and transferred to the buyer's name?
• What form of payment does the auction company accept from buyers.
• Is the auction seasonal? Is it a good market for selling via auction?

Let's further explore the best reasons that home sellers choose to put their house up for sale on auction instead of selling their home on the traditional market. We will also look at some of the downfalls of auctioning your home.

A home auction attracts serious buyers

Auctions primarily attract investors with plenty of capital, but lately, auctions capture bids from the everyday house hunter due to low inventory in the traditional market. Some auction companies are reporting up to 20% are owner-occupants, just as serious about a purchase as the site’s repeat buyers, who are primarily investors.

To further ensure the auction draws only serious buyers, companies like hers require users to undergo a prequalification process before they can bid.  In many cases, the highest bidder is required to provide a large non-refundable earnest money payment (for example, 10% of the purchase price) at the time of sale. This nonrefundable deposit helps ensure the sale will go to settlement and weeds out less-serious buyers. 

The downside, this scares off buyers that are qualified to financing the house but don't have that much cash laying around. It is also a bit scarry to risk-advers buyers who will want a "great deal" on the house if they are shelling out a big check up front.

You know the exact date your home will sell

Holding on to a property can be costly. Selling your home via auction not only expedites the process (sales often close under 60 days from listing), and the auction method also allows you to know the exact date of sale, so you can budget accordingly. Sellers can avoid high carrying costs like mortgage payments, taxes, and home maintenance by budgeting for an exact sell-by date rather than listing a home the traditional way and hoping for the best.

The downside, there is still a chance the buyer will fall through but at least you have the earnest money in hand. Also, many traditional sales can also close in under 60 days from the listing so while the time frame is not as certain as auction, it may be worth looking into.

There’s no ceiling in a competitive market

There’s nothing quite like the buyer’s rush inspired by a bidding war, and in a strong seller’s market, the sky’s the limit. Just like the ticking clock on eBay, Auctions create a sense of urgency in the buyer. Auctions also can use the "multiple bidder" environment to create competition. Because people are scared of losing out, some people will spend a lot more in an auction environment than they would in a negotiated sale. In competitive markets and price points buyers will sometimes turn to the auction method if they’ve had trouble purchasing through traditional real estate listings making hot markets a good time to go to auction.

The downside, a hot market should create a similar "multiple bidder" effect in a traditional sale as well negating the need for auction house services and allowing sellers to get full real estate services with the same competivie price result - or more - since traditional markets usually have a larger buyer pool.

Save time and money in a slow market

Auctions are not only for competitive markets. They can also be helpful in a downturn to sell a house quickly at true market value. In a slowing market, sellers often have trouble pricing their homes to sell quickly. By auctioning a home, you can avoid that lag and ensure your home sells at its current value quickly.

The downside, because auctions rely on creating a competitive bidding market, you will have to start with a low price. The same effect can often be acheived in the traditional market if you work with an experienced agent who is working ahead of the market (not chasing it down) and has a good marketing and pricing plan for the current economy.

In the end, a home auction is something you want to think about whether you go that route or not. If the auction scenerio appeals to you, call me today to see if you can get the same result with a traditional home listing or if you should be referred to a local auction company.