Putting your home on the auction block
Michele Lerner | Improvement Center Columnist | February 12, 2013
Auction houses around the country are seeing new interest among sellers in the auction process. Whether they own an unusual property such as an estate with a winery on the grounds or a luxury condominium in a sophisticated city -- or even an ordinary home in a suburban cul-de-sac -- the owners typically are motivated sellers. These sellers prefer to avoid a possibly extensive period of time in which they must keep their property immaculate, show it to prospective buyers and then negotiate over repairs and price. An auction offers the sellers a known date as to when their property will be sold.
There are several reasons an auction might appeal to you.
- You don't live in the property. If you moved out of the area or even locally, it can be difficult to have a property kept in good condition and shown to buyers if you are not there to keep it maintained. If you had tenants that moved, you aren't earning any income when the property sits empty. A quick sale could save you money.
- You inherited the property. If you inherited property in another state it can be difficult to prepare the home for sale, find a real estate agent and price it right. An auction company can take care of the sale quickly.
- You must move. If you already purchased another home and want to stop paying two mortgages as soon as possible, a known date of sale can be reassuring. Closing dates are usually within 30 to 45 days after the auction.
- You can sell "as is." If you have repairs that must be paid and you don't have or don't want to spend the money, you can sell your home "as is" to avoid having the buyers negotiate repairs. However, most auction buyers have a home inspection and the auction company typically does a property report, so if you have major structural issues that can reduce the price you are likely to get.
- Your buyers will be qualified. Auction buyers have to register, make a deposit and prove that they have cash or mortgage financing in place, so you don't have to worry that they will be cancelling your contract at the last minute because they don't qualify for financing.
- You can pay a lower commission. Auction houses often get paid by a "buyer's premium," so you would only have to pay a small commission to the buyer's agent. And many auction buyers don't work with an agent at all.
- You don't have to worry about the appraisal. The fact that buyers compete against each other in open bidding usually means that appraisers agree that the final price is fair market value on that day.
While there are clearly some advantages to selling your home at an auction, there are some disadvantages to this sales method, too. The biggest disadvantage is that the sales price is out of your control. In a traditional real estate transaction, you can negotiate with the buyer until you are both satisfied with the price. At an auction, you won't negotiate at all, and the final price is determined by competing buyers. However, many auction companies allow you to set a minimum price which may or may not be disclosed to bidders. If no one bids at or above your minimum, you won't need to sell your house.
If you aren't sure you want to sell or don't have a reason to sell quickly, you may want to try a traditional sale first to see if you receive an acceptable offer. Auction buyers are typically looking for a bargain, so you may find you can get a higher price in a traditional sale. On the other hand, competitive bidding at an auction can sometimes generate a higher price.
In addition to looking at the sales price, you should be certain to understand that the number that matters most is the proceeds you actually keep. Even if you get a lower price at an auction, you may end up with more money in the bank if your costs are lower.
Auction houses such as Williams, Williams and McKissick in Tulsa, Okla., have added individual sellers divisions to their companies because of additional customers in 2012, and they expect to have a lively market in 2013, as well.