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  The Real Estate Adviser By Steve McLinden, Bankrate.com    

Home auctions not for the faint-hearted

Dear Steve,
We plan to auction our home. What do you think of this? How does this work and what is required?
-- Michelle

Dear Michelle,
If you want to avoid the lengthy and often convoluted process of selling a home the traditional way, the auction may be your thing. Currently, the percentage of homes selling by auction in the United States is still in the low single digits, but that's expected to grow significantly in the next decade, according to industry trade organizations and brokerage firms. In England, about 10 percent or homes are sold by auction, and up to 80 percent are handled that way in areas of Australia, mate.

National home-auction firms such as Sheldon Good & Co., J.P. King and National Auction Group are easily accessible on the Internet, although they tend to focus on higher-end properties. If they aren't appropriate for your needs, they can refer you to an organization that will be. Many of your larger brokerage houses can also hook you up with auction sellers or handle these themselves.

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Auctions work well if you're under time pressure. Sales and closing can usually be handled in 90 days. The bulk of that time will be spent by the auction house intensely marketing your property to interested buyers before the auction date.

There's also significantly more buyer urgency in the auction setting. The process weeds out the tire kickers and dreamers who can't qualify for a mortgage, so only serious buyers will be coming to the table. In most cases, auction buyers must plop down a deposit ranging from $2,000 to as high as 10 percent of the value of the home and will have to forfeit that sum if they win the bid and later back out. Contrast this with the conventional sales method, where as many as a quarter of agreed-to sales fall through for one reason or another before any money changes hands.

Not only do you have additional leverage in an auction, the seller gets to set the sales date and the minimum price. What's more, you can always refuse to take less than you want, should the bids not be up to snuff. Of course there's always a chance you'll benefit from a good old-fashioned bidding war.

But the fees charged by the auction house can be comparable to a sales commission set by a standard seller's agent, or even a little higher. And many auction sales still require the services of a real estate agent or attorney to handle closing. So you may not save much other than time through an auction. You also may have to endure a second auction if the first one doesn't produce expected results.

Good auction houses should be able to give you a learned opinion on what your "reserve" price, or minimum price, should be, well before the big date. They will base that on current market conditions, comparable sales in the area and early buyer interest. They will also produce an information booklet that will contain a statement of auction terms and conditions, and such things as a survey, water-and-sewer evaluation, termite inspection and other relevant data to help prospective buyers in their due diligence.

Open-house showings before an auction are also more frequent than through the standard drawn-out listing approach, as you might expect. And be warned that some sellers find auction day quite stressful, as they see their beloved home of 30 years hawked publicly to a stranger in a period of five or six minutes. It's not for the faint of heart, but it may be right for you.

I wish you luck in the process.

-- Posted: Aug. 14, 2004

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See Also
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