Selling a Home at Auction
Going, Going, Gone. SOLD!
To a homeowner, these can be the most beautiful words in the world, especially in a market like this one where selling property the conventional way is often a prolonged pain in the patootie.
In the last few slow-market years, the real estate auction business has been growing like crazy. In 2007, it made $58.4 billion in revenues, up 39 percent from 2003, according to the National Auctioneers Association.
Sellers love auctions because they are “fast, efficient and effective,” says Joe Wilson, owner of Wilson Auctioneers Inc. in Hot Springs, Ark.
Wilson auctioned off Hot Springs-area businessman Mark Bratton’s home and Bratton couldn’t be happier. The bottom line was the most persuasive, Bratton says. “I told Mr. Wilson that I wanted $250,000. He told me getting that much would be a no-brainer. In fact, the house actually sold for $275,000. We were just really thrilled.”
Some people still associate auction sales with distress, but auction professionals say these days that’s absolutely not true. About 11 percent of the time, auctioned homes sell for more than what the seller had previously listed the home for in a conventional sale, says G.T. Bynum, marketing director for Williams & Williams, one of the nation’s largest auction companies with operations in all 50 states.
“A marketed auction, handled professionally and efficiently, is better than other method of selling a property,” says Pam Rose, whose Pam Rose Auction Co. sells homes in northern Ohio and southern Michigan. “An auction is like the Blue Light Special at Kmart -- everybody wants what you’re selling, and they’ll fight over it.”
Indisputably, auctions are fast and short on aggravation. There are usually very limited opportunities for potential buyers to view the property -- often just a couple of hours before the sale, so the seller isn’t inconvenienced by potential buyers trooping through the house for weeks or months. The sale itself is completed in a matter of minutes and closing is within 30 to 45 days.
Condition may affect the price, but sellers don’t have to spend a lot on fix-up or paint. Buyers bid at their own risk -- there are no contingencies and no guarantees about the condition of the property. The standard language says it all: Properties are auctioned "as is, where it is" and "in its present condition."
If you’re considering auctioning a property, here’s how to go about it:
Step 1: Find an auctioneer who specializes in your type of home
Choosing the right auctioneer is the first and most important step. Auctioneers specialize. Obviously, if you’re selling a house, you don’t want an auctioneer whose specialty is cattle or antiques. But you also probably don’t want an auction company that mostly does multi-million dollar mansions if you own a suburban townhouse. And it probably isn’t wise to select an auction company that never does anything but bank-owned foreclosures if you and your real estate are solvent.
Hiring an auctioneer who routinely handles sales of houses similar to yours will make it more likely that he’ll attract a crowd of buyers who are hoping to buy a property that is similar to yours. A locally based auctioneer may understand your market better than a national company -- but not necessarily. Some national companies have extensive databases of potential buyers and use them to reach out aggressively.
Find auctioneers through the National Auctioneers Association, which in December launched the first auction multiple listing service as well as an auctioneer search engine. Another way is to look in your local newspaper for the regional auction firms that do the most business in your area.
Give the likeliest candidates a call and interview them for your auction job. Here are some questions that Ohio auctioneer Rose suggests you ask:
- How many houses have you sold? More is generally better.
- What’s your marketing plan? A good advertising strategy can make the difference between a successful auction and one that flops.
- What are your credentials? Most states require that real estate auctioneers hold a real estate license. Additional auction training can’t hurt -- certified auctioneers have completed a three-year training program.
- How’s your ethics? The National Auctioneers Association requires members to adhere to a code of ethics. It’s also a good idea to check with the Better Business Bureau, or in 34 states there’s a licensing process and a way for the public to register a complaint against license holders.
- Let me talk to your last three customers. Checking references is always a good idea.
There are many legitimate ways to handle auction fundamentals, so find an auctioneer who does business in a way that makes you feel comfortable. Read on for some of the key issues.
Step 2: Ask how the auctioneer gets paid
Some auctioneers charge the seller between 6 percent and 10 percent of the sales price as a commission. Others charge the buyer an auction premium, usually 10 percent. And some split their commission between the buyer and the seller -- for instance, the buyer pays a 5 percent auction premium and the seller pays a 5 percent commission. Chris Longly, spokesman for the National Auctioneers Association, says some auctioneers believe the auction premium approach discourages bidders. Ohio Auctioneer Rose prefers an auction premium because it places the burden of payment on the buyer.
Step 3: Choose between an absolute auction or an auction with a reserve
Selling your home through an absolute auction means the highest bidder gets the home no matter what the bid. Setting a reserve, on the other hand, requires the auction to reach a certain amount or there’s no sale.
Absolute auctions heighten the drama -- there’s no turning back -- and bring in better prices, says Rose and Bratton, who sold his Hot Springs home at auction. Setting a reserve gives sellers an option and is fairer in an unstable sales environment, believes Jim Tomaszewski, co-owner of JM Auction Services in Adrian, Mich.
“With an auction, whether there’s a reserve or not, people can have confidence that the property is selling for what buyers think it’s worth. They may not like it, but that’s what it is,” says Bynum of Williams & Williams.
Before setting a reserve, make sure you understand what the no-sale fee is. That’s the price you pay the auctioneer for changing your mind and can be just as much as the price of selling the property.
Step 4: Find out how bidders will be qualified
Some auction companies require that potential bidders present a letter of credit from their bank or a statement from a lender certifying that they are credit-worthy up to a given level. This ensures that a buyer can actually complete the sale. Other auction companies -- usually those that deal with less-pricey properties -- simply ask registering bidders for a certified check equal to about 10 percent of the expected sale price. The check will be returned to non-winning bidders and forfeited by the high bidder if he is unable to close.
Step 5: Determine how bids will be accepted
The tried and true method is “on the lawn.” Bidders stand outside of the house while the auctioneer makes the sale. Some auctioneers believe they get better prices if they group houses together and sell them off site. These “ballroom” sales can attract hundreds of potential bidders who get the fever and bid until they win a property. Some auctioneers also accept sealed bids in advance, telephone, smartphone and Internet bids, which Longly at the auctioneers association says works well for highly desirable homes in attractive settings.
The best way to understand auctions is to go to a few. As you get your feet wet, you’ll realize, Longly says, that “everything in this business is negotiable.”