March 2008
Auctions can bring a quick sale
Home sellers who have had no luck finding a buyer the usual way—or who want a quick closing with minimum hassles and paperwork—are
increasingly turning to auctions to snag a sale.
In 2007, gross sales of U.S. residential real estate bought through live auctions rose to $16.9 billion, compared with $16 billion in 2006 and $14.2 billion in 2005. In all, between 2003 and 2007, sales of residential real estate through auctions rose 42.6 percent.
"People are becoming more aware of how it works and more willing to accept the prices," says Bill Sheridan, president and CEO of Sheridan Realty & Auction in Mason, Mich., and board chairman of the National Auctioneers Association. "We get about three to five calls a day from people who have houses for sale and would like to pursue the auction method."
Auction houses vary on how they handle details like fees and marketing, but they generally work the same way. The auction date is set at the time you sign a contract with an auction company, usually four to eight weeks away. The auction house conducts a marketing blitz that, depending on the property, can involve mass mailing of brochures; local and national newspaper, TV, and Internet ads; and listing on the company’s Web site. Typically at least two open houses are held. Potential buyers can arrange for their own inspection and appraisal, and they generally have to secure financing in advance. Properties are sold "as is," and all transactions are cash.
Sellers have to pay the marketing costs up front, and they are generally not refundable, even if there is no sale. The winning bidder often pays the commission (called a "buyer’s premium") to the auction house, though some companies transfer commission costs from buyer to seller. Commissions generally range from 5 to 10 percent, depending on the services provided.
Many homeowners choose to sell "subject to reserve," which lets them set a minimum price that must be met or the property is withdrawn. In an "absolute" auction, the seller agrees to accept the highest bid, period. That sounds risky, but auctions can go both ways. Sheridan tells of a three-bedroom house in Mason that he recently auctioned. It had been on the market for a year at $160,000, and the house sold for $173,000. "The auction has a tendency to expose homes to a segment of the market that hadn’t noticed it before," he says.
If you go this route, make sure the auction company you choose has both a recent and a long-term track record selling residential real estate, and that the auctioneer has a designation from the Certified Auctioneers Institute. Ask to see a sample marketing plan and budget, and get references for sellers of homes similar to yours.
Auctions generally work best in a seller’s market, with competing buyers driving up the price. In a slow market, you may have to set a reserve that’s lower than you’d like. Auctions are most appropriate for motivated sellers who need to unload their place because of a job change or divorce, or to close on another home. For more information, go to the National Auctioneers Association Web site.
In 2007, gross sales of U.S. residential real estate bought through live auctions rose to $16.9 billion, compared with $16 billion in 2006 and $14.2 billion in 2005. In all, between 2003 and 2007, sales of residential real estate through auctions rose 42.6 percent.
"People are becoming more aware of how it works and more willing to accept the prices," says Bill Sheridan, president and CEO of Sheridan Realty & Auction in Mason, Mich., and board chairman of the National Auctioneers Association. "We get about three to five calls a day from people who have houses for sale and would like to pursue the auction method."
Auction houses vary on how they handle details like fees and marketing, but they generally work the same way. The auction date is set at the time you sign a contract with an auction company, usually four to eight weeks away. The auction house conducts a marketing blitz that, depending on the property, can involve mass mailing of brochures; local and national newspaper, TV, and Internet ads; and listing on the company’s Web site. Typically at least two open houses are held. Potential buyers can arrange for their own inspection and appraisal, and they generally have to secure financing in advance. Properties are sold "as is," and all transactions are cash.
Sellers have to pay the marketing costs up front, and they are generally not refundable, even if there is no sale. The winning bidder often pays the commission (called a "buyer’s premium") to the auction house, though some companies transfer commission costs from buyer to seller. Commissions generally range from 5 to 10 percent, depending on the services provided.
Many homeowners choose to sell "subject to reserve," which lets them set a minimum price that must be met or the property is withdrawn. In an "absolute" auction, the seller agrees to accept the highest bid, period. That sounds risky, but auctions can go both ways. Sheridan tells of a three-bedroom house in Mason that he recently auctioned. It had been on the market for a year at $160,000, and the house sold for $173,000. "The auction has a tendency to expose homes to a segment of the market that hadn’t noticed it before," he says.
If you go this route, make sure the auction company you choose has both a recent and a long-term track record selling residential real estate, and that the auctioneer has a designation from the Certified Auctioneers Institute. Ask to see a sample marketing plan and budget, and get references for sellers of homes similar to yours.
Auctions generally work best in a seller’s market, with competing buyers driving up the price. In a slow market, you may have to set a reserve that’s lower than you’d like. Auctions are most appropriate for motivated sellers who need to unload their place because of a job change or divorce, or to close on another home. For more information, go to the National Auctioneers Association Web site.
