For the last few years, it has been a buyer's market. Low
interest rates and home prices gave buyers the undeniable
advantage. Sellers on the other hand, struggled to get top dollar
for their non-distressed homes, often selling at a loss or having
their homes sit on the markets for months and months.
Frustrated by the slow and sometimes unfruitful process of
selling their homes the traditional way, more homeowners have taken
to selling their homes in a rather unconventional way: at
auction.
Why sellers choose auctions
"We launched a special individual home sellers division in
January 2012 because of the growing interest among sellers in the
auction method," says Fontana Fitzwilson, executive vice president
of Williams, Williams and McKissick, a real estate auction company
in Tulsa, Okla. "The number one reason sellers like auctions is
that they offer a time-definite method of sale."
Read:
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In addition to appealing to homeowners who need to sell by a
specific date, Fitzwilson says auctions also appeal to out-of-state
family members who have inherited homes.
Stephen Karbelk, co-chairman and founder of AmeriBid, another
real estate auction company in Tulsa, Okla., says the rising number
of individual auction sales is also a function of financially savvy
sellers.
"Sophisticated sellers understand the cost of carrying a
property," says Karbelk. "Auction marketing offers a way to get
your home in front of more people and forces people to make a bid
by a certain date."
And it's not just distressed properties that are selling at
auctions these days. Jennifer Leuer, senior vice president of
Auction.com in Irvine, Calif., says non-distressed property
auctions have become more popular this year because sellers like
the transparency of the process.
"Sellers know they're getting preapproved buyers and
non-contingent contracts," she says. "They also know they're
getting the true market value for their property."
Auction.com recently started a residential auction division that
sold $47 million in individual seller auctions between Jan. 1 and
Dec. 1, 2012.
All property types sell at auctions
Auctions have become more popular across all types of markets
and price ranges.
"In some markets, individual auctions are mostly a way to sell a
unique property
that needs to be showcased," says Karbelk.
Leuer says that while her company has recently focused on
high-end properties, auctions run the gamut from small,
single-family homes in rural areas to
condos
in big cities
"Auctions are a time-honored way to sell something when it's
hard to evaluate the value," says Leuer. "We definitely see them at
both ends of the home value spectrum, including in areas with low
inventory."
6 advantages to selling at an auction
There are a few distinct advantages for homeowners who decide to
sell at auction:
No. 1: Qualified borrowers:
Auction buyers need to be prepared to pay cash or have confirmed
financing prior to the auction. "You need a mortgage preapproval
with a lender who can perform within the limited timeframe between
the auction and the closing date," says Karbelk.
No. 2: Serious buyers with serious offers:
Buyers have plenty of opportunity to do their due diligence on your
property well before auction day. Since auction companies post
extensive information about properties 30 to 45 days prior to the
auction date, and typically hold several open houses and even allow
you to schedule a private visit and bring your own home inspector,
sellers know they're getting serious buyers with serious offers on
auction day. Most auction companies hold a live auction and an
online auction simultaneously.
No. 3: Fast closings:
Buyers are typically required to close within 30 to 45 days after
the auction sale.
"Sellers understand that while they own the property, they need
to keep making tax payments, insurance payments, utility payments
and mortgage payments," says Fitzwilson. "A quick closing stops
those payments."
No. 4: No appraisal issues
: Since the buyer and seller have agreed to the price at an auction
without negotiations,
appraisers
typically agree that the final price is the fair market value on
that day and at that time.
"An appraiser will usually appraise an auctioned property at or
above the final bid, so that's clearly the fair market value," says
Karbelk.
No. 5: Lower real estate commissions
: Most auction companies charge a "buyer's premium" of 5 to 10
percent of the final price of the home, says Leuer. This premium
goes to the auction company to pay for marketing and other
expenses. The seller will usually pay a small commission to the
buyer's agent if there is one, but many auction buyers do not work
with a Realtor.
No. 6: No contingencies
: Your home will be sold "as is, where is," so you won't be
expected to paint your walls or fix a leaky faucet before the
closing.
Auctions aren't for everyone
While enlisting a real estate agent and selling the traditional
way could mean that your home could sit on the market for months,
it can open your home up to a wider pool of buyers if you engage in
open houses and individual showings.
Often, sellers want complete control over the price they get for
their home rather than leaving it up to an auction. Some sellers
may prefer to see what buyers will offer for their home before
deciding to sell at all, so a traditional sales method could be
better than committing to an auction.