Not every home auction is a distressed sale.
These days, the term "real estate auction" usually triggers images of foreclosures on the courthouse steps. But a small number of sellers are deciding to sell at auction rather than using the more traditional sales method, either because they want to move relatively quickly or because they believe the bidding process will produce the highest price.
Sellers often hire an auction company, which advertises the property for sale and typically hosts a series of open houses to show off the home. Then the property goes up for sale on auction day.
Like any other method of selling a home, it pays to do your homework. That means researching the auctioneer and the company, the auction process and even your own home so you know how the process will work and what you stand to lose or gain.
Here are 14 questions you should ask.
14 questions you must ask before auctioning your property
- What is the auctioneer's background, training and experience?
- Do I know, going in, what my home is worth?
- What is the auction going to cost me?
- Did the auctioneer answer all my questions?
- Have I attended a home auction recently?
- Do I understand the auctioneer's marketing plan and sales strategy?
- Under what circumstances can I change my mind?
- Am I protected if the sale doesn't go as I want?
- Am I comfortable with my decision on a reserve bid vs. absolute auction?
- Do I understand the entire contract?
- Have I honestly disclosed all the property's flaws?
- What happens if I want to sell before the auction?
- How will the company be showcasing my home?
- Am I considering an auction to get more than the property's really worth?
1. What is the auctioneer's background, training and experience? These days, "we're seeing all kinds of auction companies springing up," says Alan Kravets, president of Sheldon Good & Co., a Chicago-based real estate auction house.
The basics: The auctioneer must be a real estate broker and must be licensed to sell at auction in your state.
"Whoever you hire has to be very good at knowing the market on that property and what it will take" to get the best price, says Randy Wells, owner of Realty Auction Services in Post Falls, Idaho, and president of the National Auctioneers Association.
Location can also be an issue. "People have the misconception they have to find someone in their local area, and that's not the case," Kravets says. A personal relationship or local address doesn't necessarily lead to a good auctioneer. Instead, look for someone who has extensive experience auctioning real estate, preferably property similar to yours, he says.
Many auctioneers belong to the industry's membership organization, the National Auctioneers Association in Overland Park, Kan. The group has a professional code of ethics and a complaint procedure if you have problems.
2. Do I know, going in, what my home is worth? "Do your own homework," says Bill Carey, co-author of "Going, Going, Gone: Auctioning Your Home for Top Dollar." You can get free evaluations from local real estate agents, pay an appraiser for a valuation or check the tax records online to get the current value.
Sellers need to be realistic, says Ruth Markley, who recently sold her Tulsa, Okla., home at auction after trying a more traditional approach. "Check out what the property is going for," she says.
3. What is the auction going to cost me? "It's all negotiable because the auction houses want to get the deal," says Carey.
Some auction houses will charge a "buyer's premium," a fee of up to 10 percent of the cost of the house. Others will charge fees to both buyers and sellers. But even with the same type of house, different sellers can negotiate different deals on fees and services. Shop around and haggle.
4. Did the auctioneer answer all my questions? Interview more than one auctioneer before choosing one. "Interview them the way you would interview a Realtor," says Carey. "And hire the kind of auctioneer who will do the job the way you want it done."
According to Carey, important questions can include:
How will the auctioneer guarantee that people will show up?
How does the auctioneer get to know potential bidders?
How does it benefit me to pay for the auctioneer's services, instead of having the fee come from the buyer's premium?
Will the auctioneer be paid even if the home doesn't close?
How does the auctioneer verify that bidders have financing?
What is the procedure for tracking backup bids in case the winning bid falls through?
Where will the auctioneer advertise my home, and what will the advertising look like?
5. Have I attended a home auction recently? Before you hire an auctioneer, go to one of his auctions to see how he performs, how large the turnout is and how many attendees actually bid.
Examine the marketing materials and ads. Is the approach effective? Drop by one of the company's open-house events and evaluate how well the property is showcased. Is the home well staged and inviting?
Check referrals from past clients, preferably people with similar properties. Did the marketing live up to expectations? Did the auctioneer deliver as promised? What did he think the property would fetch, and what did it bring?