This is a guest post by Daniel Beer. Daniel is a San Diego real estate agent who primarily focuses on Santaluz homes for sale. He has used auctions in the past with great success.
Today’s market requires us to have a very deep tool belt when it comes to selling homes. An action should be one of those tools and there are situations in which it can be the right strategy to get your home sold.
Homes that are good candidates for auctions are those without any relevant comps. If you have a home that is outside the scope of what your neighborhood commonly offers – whether due to price, size, or style – an auction may be exactly what you need in order to properly valuate the home. An example would be if you were selling a custom 6,000 square foot home, in a neighborhood where the biggest home to have sold in the last year was 4,000 square feet. It would be very challenging to put a firm price on that home, which makes it ripe for an auction.
Homes that have to be sold by a particular date are also great candidates. An auction is the only way to ensure that any home will be sold by a deadline without having to severely under price the property.
It is all about the psychology that comes into play with a home auction. Traditionally when a home is marketed each passing day makes the home listing old and stale. Auctions achieve the opposite because with each passing day the sale date draws closer. People’s competitive nature kicks in and they often try and purchase the property before the auction in order to thwart the competition. The home owner, of course, is free to accept an offer prior to auction date.
In general, an auction makes people’s competitive nature come out because they sense that there is a deal. If on a Sunday there are five or six homes holding an open house but only one of the signs says “Auction” which do you think people are going to be interested to see first? In other words, the auction process not only makes people feel like they are in competition with one another but it also drives more traffic to the home because everyone is after a deal. Of course, the level of competition helps drive the price up and the deal doesn’t turn out to be as sweet as they may have imagined.
Auctions can be reserve auctions or absolute. With a reserve auction there is an undisclosed reserve price that the seller and auction company agree to. If the buyer’s bids at auction do not meet this price there is no obligation for the seller to part with the home. However, the seller can still choose to let it go if they wish. In an absolute price auction there is no reserve. Wherever the bidding ends up is the price the home is sold for. Some sellers are intimidated by this, but the fact is that absolute auctions normally produce a higher price because a far greater amount of buyers show up to bid, driving the price up.
Something to consider for today’s market.
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Great guest post on auctions. We have used them with some success in the Pensacola area market; particularly with beach properties – second homes. I agree that it is another tool in your selling arsenal and with unique properties it can be the best option.
Pensacola Real Estate
Hi Daniel ~ Very interesting post. We haven’t had many of these in the real estate market in my neck of the woods, Cambridge MA, but it’s an intriguing idea. As a former full-time ebayer – years and years ago when it was much smaller and simpler – I sure know how the auction model can spur sales and increase prices.
Liz
This was a great guest blog post, and on a topic that I am not very fluent in. I appreciate your thoughts. I really have not considered using auctions much in the past, but as you said, for very unique homes with little or no comps, this would be a great option. And for homes that must sell by a particular date, this would be a great fall-back option as well. For couples that are going through a divorce, this would be a nice alternative that could help avoid the ‘sales-sabotage’ that you can often encounter when one party is bitter and doesn’t want to let the sale occurr. Great points…
Very interesting. Good helpful info.
Thank you.
Interesting article. I haven’t seen many auctions in Duluth lately, but did see one for a former bed and breakfast which would fit into your unique property description. I like the idea and am excited to put it into practice when the time and property are right!
We are starting to see many more auctions in Tampa. It takes nerves of steel to get involved in the auction process if you are trying to buy a home to live in. If you are buying a rental unit then it is simply a commodity and a lot easier to remain unemotional. Emotions don’t work well when you are contemplating a $100k + acquisition.
Not too many sellers willing to go the auction route. We see these as usually Bank Owned or Foreclosed properties. I have several investors that love auctions.
Great post. Auctions are not for the faint of heart, but can yield good returns for an investor that does their homework.
Hi Aaron,
We are very interested in doing an auction here in the Destin/Pensacola, FL area.
I agree this is one tool in our tool box that we can use at times and make sense in our current real estate market.
We have not done an auction yet but would like to. Any tips you could give us? Thanks!
Great way to get a crowd is to auction most best practice use is also the open house technique works with really nice properties Properties in South beach
I’ve heard many of these auctions allow the buyer to still use financing. However, what if the buyer has an FHA loan and the house appraises for less than the bid amount?
I suppose, that like in Idaho, if the appraisal is lower than the contract amount 1 of a handful of things could take place:
1. Buyer walks and gets their earnest money back
2. Seller lowers their price to appraised value
3. Buyer bings extra cash (if possible)
4. Buyer/Seller renegotiate the contract amount
Auctions can be initially scary to the seller, but if you explain the benefits and why it isn’t as risky as it may first seem, auctions can be great for everyone!
I must admit, I have never viewed auctions as a good way to market OR buy a home. There always seem to be uncertainties that simply are not present with a traditional of even a short-sale or bank-owned home purchase.
But you make some very good points. There are many kinds of auction “schemes”, and it may be a good way to sell an unusual home that simply does not conform to the neighborhood. These types of homes are problematic for traditional appraisal techniques. Why not let the eager buyers put their money where their mouth is and TELL you how much the home is worth?
Thanks for the food for thought!
We don’t sell homes in Santa Monica by auction but I think it would be a great idea to get these homes that are sitting SOLD.
We have proposed this option in our real estate business to several clients with little success. Would love to try this type of sale. Just need the right property and seller.
Well, strategies in buying and selling houses can be very interesting. When I got my first lead it took me sometime to learn how to deal with the buyers. But auctions are actually good especially if the property is worth every bucks.
One of the best ways to stand out of the crowd is by showing your efficiency in a busy and often complex market place. Yes auctions can be used but effective property management is the best way of really hitting the nail on the head with home sales.
Auctions are a recognised and widely used form of selling. Not just property but livestock, household goods and cars are auctioned,
An auction favors either buyers or sellers today. Nobody wants to buy too expensive and nobody wants to sell for cheap, even if the house been sold at a high price might not the bank give a loan. In today’s harsh climate, it is important to take care of both buyers and sellers to 100% in a correct and professional manner.