Is an Auction Right for You?
Has your house been on the market too long? Not getting any offers? Then try the option celebrities use -- the real estate auction.
If that makes you think of foreclosures or distressed homes, think again. Auctions work very well for multi-million dollar homes, waterfront properties, houses with historic significance, and other houses as well, says Linda Welsh, a real estate auctioneer in Austin, Texas.
On its Web site, the National Auctioneers Association (NAA), the trade association that represents the nation’s best and brightest auctioneers, reports that nearly $60 billion worth of real estate property sold at auction in 2007. Nearly $17 billion of that involved someone’s home -- an auction category that has grown 46.6 percent since 2003, says Chris Longly, the spokesman for the association. Craig King, president and CEO of one of the oldest real estate auction houses in the country, J.P. King Auction Company out of Gadsden, Ala., says the luxury market is the most active.
Residential real estate auctions are the fastest growing sector in the live auction industry today, which is why the NAA started the industry’s very own multiple listing service (MLS) this year. For a fee, homes going to auction now can be listed not only at the National Association of Realtor’s (NAR) MLS but also at the NAA’s. Just visit the NAA Real Estate MLS to find out if there’s a home going to auction in your neighborhood.
Also, look in glossy magazines for the advertisements. Auction houses consider themselves marketing gurus, spending thousands of dollars to attract buyers to a property expected to sell on the day of auction -- its main benefit.
But is this high-pressure, fast-paced process for you? We asked the experts what you need to know to help you decide. If you're thinking of selling your home through an auction, refer to this checklist to familiarize yourself with the process:
- Do your research. Find an auctioneer who knows how to create the sense of urgency needed to bring qualified buyers to the property and make the sale. Talk to more than one auction house. Attend auctions. Get in writing a proposal that states how your house will be marketed. Because you pay for this advertising, ask for a line item budget. Ask about a Buyer’s Premium -- if the auction house allows it, you can add on the cost of marketing to the cost of the sale so that the buyer pays for the marketing instead of you. Since auction houses often schedule educational seminars that explain the process, it might be a good idea to attend one for more information. The NAA is also a good source of information for first-time sellers and buyers.
- Choose an auctioneer. Contact the NAA to find out if there are real estate auction houses licensed in your area to serve both as your real estate agent and your auctioneer. They may have any number of designations, but the most important to look for are the AARE (Accredited Auctioneer Real Estate) and the CAI (Certified Auctioneer Institute). Both certifications are available through the NAA. Check the NAR for real estate-specific designations. Regardless of the letters behind the name, make sure the real estate auctioneer not only looks good on paper but performs well. That means check track records -- where have they sold houses and how many in your area? Get referrals and recent testimonials.
- Make sure you're comfortable with how the auction will be handled. Just like a real estate agent, the real estate auctioneer represents the seller; however, auctioneers consider the buyers their customers as well. Because the sales occur as-is, they encourage buyers to work with real estate brokers. They schedule open houses and inspection days. At the auction site, although bidders come prepared to buy with refundable (if they aren’t the high bidder) down payments and bank-issued letters of credit, some auctioneers may even invite mortgage companies to participate as needed. The house may be open prior to the start of bidding for final walk-throughs, information packets about the house and neighborhood are available, and one auction house even sets up a band and provides food for the event.
- Price the house and choose a bidding method. Sellers pick the price and then decide how they want the bidding process to work. There are basically two methods: absolute and reserve. The absolute method creates the most buyer interest and excitement because high bid wins; it’s absolute. With the reserve method, the seller has picked the lowest acceptable price (which may not be published) and has control over the final sale. The high bid may not get the house, as the sale is contingent on whether the seller accepts the final bid. This method works best if there’s a mortgage to consider, but the auctioneer helps determine which process will work best.
- Work with the auctioneer to ensure a speedy process. From the day you sign the contract to work with the auction house to closing day, the process can take anywhere from 30 to 90 days. Photos, including aerials, are taken and ads created and published. Fliers go out. Information is posted on Web sites. Open houses are scheduled. Title work is completed. And the auction date is set. The contract is ready for review. Any inspections and due diligence must occur before the day of auction. Within 30 days after auction, the buyer must close on the house.