No longer only for selling livestock, estate goods and vacant land, auctions have become the fastest growing way to buy and sell homes and not necessarily as a last ditch effort.
The fastest growing segment of the auction industry, residential real estate auctions on or off line have experienced gross revenue growth of 39 percent from 2003 to 2006, according to the National Auctioneers Association, which has created NAARealEstateAuctions.com, a real estate auction multiple listing service (MLS) to handle the volume. Many, but not all, auctions are listed there.
While auctions can be a useful transitional tool in a soft market to help move stubborn properties languishing on the MLS, they also provide a host of benefits to sellers, buyers and their real estate agents.
In Going, Going, Sold" for the California Association of Realtors, Roger Cruzen says auction proponents like them because they result in faster sales and prices more in line with today's market. As the saying goes, a home is worth whatever the buyer is willing to pay.
Set a date, market the property, bring on the buyers, hold the auction and hammer down the gavel. Closing the deal can take as little as 30 days.
Some of that speed is related to the absence of contingencies. The property is sold as-is. Auction buyers typically -- and they should -- inspect a property before deciding how much to bid. Sellers don't have to sweat it out waiting for post-offer inspections or the buyer to get financing.
The National Association of Realtors (NAR) lists a host of key benefits for all auction parties.
- Seller. Buyers come pre-qualified and prepared to buy. A quick sale reduces carrying costs. Auction action sets off a bidding war with the potential of final price that exceeds the price of a negotiated sale. The auction takes the seller out of the negotiation process.
- Buyer. The buyer determines the selling price. Assuming there's no overbidding, the buyer gets the property at fair market value. The buyer knows the seller is motivated to sell. Purchasing and closing dates are immediately known. Buyer competes on the same terms as all other buyers. Due diligence packet gives buyers comprehensive information on the property.
- Real estate agent. Agents can earn commissions, typically as a share of the auctioneer's percentage. They also obtain a list of qualified buyers and obtain another marketing niche. Auctions also bring in clients to look at all listings, not just the auction items.
Generally, there are three types of auctions.
- Absolute (Auction Without Reserve). The property sells to highest bidder regardless of price.
- Reserve. The seller retains the right not to convey property if the high bid is below the unpublished asking price.
- Published Reserve. Property is sold for an amount equal to or greater than a published minimum sale price.
NAR says successful auctions require strong publicity, an adequate period to view the property, full disclosure of the sales terms and, perhaps most importantly, well-prepared buyers.
Here's how to prepare for an auction.
- Do your homework. Obtain brochures about the properties for sale. The brochures will describe the properties, financing arrangements, closing information, terms of the auction and times you can see the homes. Attend any previews to examine the properties. Get a home inspector or general contractor to check out any rehab work. Sit in on an auction before you actually participate.
- Work with a professional. An attorney or legal- and auction-savvy real estate professional will hold your hand through the process and review all the paperwork.
- Bring a wallet. You'll need earnest money, perhaps $5,000 or more, usually as a cashier's check. Some deals require additional down payment sums, financing or both within a certain period after your bid is accepted. Get a lender's commitment for a mortgage.
- Don't overbid. Veteran auction goers say it is best to keep your bid below the appraised value or listing price to compensate for the inherent risk of unknowns associated with buying at auctions.
The Pacific Action Exchange offers additional information on itsFrequently Asked Questions Web page and NAR offers auction information in its extensive "Field Guide To Auctions".
