“Going . . . going . . . gone!”
They’re the infamous words buyers and sellers will hear at auctions. These platforms have long been used to buy and sell a host of different goods, including real estate. Buyers are hoping to snag a good deal, while sellers are looking to get their properties off their hands in a short amount of time.
Property auctions can offer sellers a quicker sale and can help maximize what the home goes for. On the other hand, auctions are better suited for specific types of properties that aren’t as easily marketed and sold the traditional way.
Once that gavel falls, the deal is legal and binding. There’s no turning back. The question is, should you consider selling your home at an auction?
Let’s weigh out the pros and cons to help you make the best decision.
You’re in the Driver’s Seat
In an auction scenario, it’s the seller who sets the terms – not the buyer. There are no clauses that come along with the home. The property is sold in as-is condition without any haggling about the condition or home inspection contingencies. Once the sale is done, it’ done. The property is transferred over to the buyer without the seller having to worry about any issues that negatively affect the home. Without any clauses associated with the bid, the seller has the most control.
Staging Isn’t Needed
In the traditional world of real estate, professional home staging is an important step. Getting the property ready for the market can help attract buyers in the neighborhood, help the home sell faster, and command top dollar come sale time.
When selling at an auction, staging isn’t necessarily called for. While sellers need to sign a disclosure statement, they typically don’t have to make any changes to the home before putting it up for auction.
The Reserve Price Protects the Seller
Just because a home is being sold at an auction doesn’t mean that the seller has to risk selling for a few dollars. By setting the reserve price – which is the lowest bid accepted – the seller is protected financially. This reserve price is set based on the current market value and comparable sales of similar homes in the area that have recently sold.
Sellers have the right to refuse any bids once they are in. Essentially, properties with higher equity can be well-suited for auction sales. If the property is close to being paid off, an auction might be the ideal platform to sell.
The speed at which auctions proceed is another reason why some sellers choose to go this route. Usually, auctions are advertised within 30 days of when they are scheduled, and deals typically close within 30 to 45 days after the date of the auction. Such a quick turnaround time means that less money is needed to cover property insurance, property taxes, and maintenance costs.
Potentially Low Auction Attendance
Properties being sold at auctions are not necessarily as widely marketed as homes that are listed in the MLS. Just about every real estate agent and buyer has access to the MLS, offering sellers a far-reaching outlet upon which to showcase their properties.
Instead, sellers are relying on the auction company to effectively market their properties, and the auction itself. Auctioneers are tasked with promoting the auction in order to generate a large attendance where a bigger crowd of interested buyers will compete to outbid each other. The more qualified people at an auction, the better for the seller. However, if the auction company is unable to generate such a crowd due to inadequate marketing and promotion efforts, the odds of receiving higher bids is a lot lower. Not only that, low attendance can also be affected by bad weather and other factors that are out of the auction company’s control.
Auction companies typically charge a premium of around 10% of the final purchase price of the property in order to cover their services. Buyers are aware of this extra fee that they’ll have to pay, and will keep that in mind when they place a bid. Depending on the auction company, this fee could also be charged in part to the seller. Compare that amount to the average real estate commission of 5%, which is half of what is paid out to auctioneers.
Auctions usually cover many different properties, each of which is essentially competing against each other for the attention of the buyers present. Such a situation gives buyers an easier way to compare homes against each other before they make the decision on which property to bid on. Buyers who bid at auctions usually want to get a good return on their investment, and aren’t necessarily trying to find a certain home for their primary residence. The competition at an auction can put downward pressure on prices in order to stimulate the interest of a buyer.
The Bottom Line
Regardless of whether you go the auction route or choose to sell the traditional way, make sure you get advice from your real estate agent. Either option will require solid guidance from an industry professional. After all, the goal is to get the best price possible upon the sale of your home, while making sure the entire sale process goes smoothly without a hitch.