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Selling a Home at Auction: Pros, Cons, and How to Get Started
HomeLight
Real Estate
3 years ago
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Once you’ve made the decision to sell your house, you likely have two main goals: to complete the sale as quickly as possible and to hit that magic number when it comes to price. Some sellers are lucky enough to accomplish those objectives by listing their homes on the regular retail market — but when time is of the essence, alternate methods may come into play. One way to expedite the process is to sell a house via auction.

If you’re considering whether selling a home at auction is the right choice for you, the first step is to gather the information you need to chart your course. What are the steps involved? What are the pros and cons of selling at auction? What are some other time-saving routes? And do you still need a real estate agent if you decide to take your home to auction? In this guide, you’ll find the answers to all of these questions and more.

Start With a Free Home Value Estimate

If you’re considering selling a home at auction, an excellent place to start as you make plans is to get a ballpark idea of what the property might be worth. Answer a few questions about the house, and we’ll give you a preliminary home value estimate in less than two minutes.

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What’s the appeal of selling a home at auction?

In a word, speed.

Eyal Pasternak, owner of Liberty House Buying Group in Miami, Florida, says the main reason homeowners sell their properties at auctions is that they can get deals done quicker rather than relying on a real estate agent. “Experienced investors and developers are often present at these trade-offs, making it easier to deal with problem properties,” he says.

Mike McClung, a home construction expert and CEO of Integrity Cash Home Buyers in Norfolk, Virginia, notes that many of the homes that go to auction are foreclosed properties. “These individuals steer clear of traditional listings, as it helps them reach a different type of niche,” he says.

The National Association of Realtors agrees that auctions can accelerate a sale, in addition to offering these key benefits for sellers:

  • Higher visibility among pre-qualified, prepared buyers who are ready to buy
  • Greater competition among buyers, which can lead to a sale price higher than market value
  • Reduction of long-term carrying costs, such as property taxes and ongoing maintenance
  • No need for staging or juggling showings and open houses
  • Elimination of stressful negotiation processes
  • No uncertainty about when the home will sell

There is overall a greater sense of transparency throughout the process, notes Anthony Minniti, a professional home buyer in Tyler, Texas. “The best part is that since bids are made publicly, sellers are always aware of the offers they receive,” he explains. “In fact, sellers can specify a minimum threshold amount to ensure that they don’t finalize a deal below the property’s actual market value.”

What are the steps to selling a home at auction?

Step 1: Find an auctioneer

As your representative, the auctioneer is the one who will actually sell your property at auction. For best results, you’ll want to find an auctioneer who specializes in your type of property. If you’re in good standing with your mortgage, you won’t want to seek out an auctioneer who works solely with foreclosures. And if you own a smaller home or condo, you likely don’t want one whose expertise lies in selling multimillion-dollar estates.

If you’re working with a real estate agent, he or she can help you locate an auctioneer. Alternatively, you can search for one on the National Auctioneers Association website. Some of the other popular home auction sites include Auction.com, Hubzu, ServiceLink Auction, and Williams & Williams.

When interviewing a prospective auctioneer, be sure to ask these essential questions:

  • How many home sales have you completed at auction? Tell me about some that have been similar to my property.
  • What marketing strategies do you use to boost the visibility of your homes at auction?
  • What licenses do you hold and/or what training have you completed?
  • What is your standing with the Better Business Bureau? (You can always check this yourself as well, but it’s a good idea to see if the auctioneer is forthright about any past issues.)
  • Can you provide references for past sellers you’ve worked with?

Step 2: Find out how the auctioneer earns their money

There are a few different ways auctioneers are compensated for their sales. In some cases, the auctioneer will get between 6% and 10% of the sale price. However, others may charge the buyer a percentage, called an auction premium, which is typically in the 10% range. In other cases, the auctioneer may opt to split their earnings across both the buyer and the seller. Make sure you and the auctioneer agree on the fees and payment terms before entering into an agreement.

Step 3: Choose which type of auction you want

According to the National Association of Realtors, there are three main types of home auctions:

  • Absolute auction: With this type of auction, the house is sold to the highest bidder, no matter how low or high the price is. This method is likely to garner more buyer interest and response, as a sale is guaranteed.
  • Minimum bid auction: In this scenario, only bids above a certain minimum threshold will be accepted. This way, the seller carries less risk, while the buyer knows that bids over a certain amount will be seriously considered.
  • Reserve auction: In this type of auction, buyers make offers and the seller can accept or reject the highest bid in a predetermined time period — generally up to 72 hours after the auction is over. Although a reserve auction poses the least amount of risk to sellers, buyers are less likely to bid because there is no guarantee that even the highest offer will be chosen.

Step 4: Determine the qualification process for bidders

Find out how your auction house vets potential buyers, whether that’s by requiring a pre-approval letter from a lender, running a credit check, or requesting a check equal to a certain percentage of the sale price in order to make a bid (which will be returned if they don’t have the winning bid).

Step 5: Find out the criteria for accepting bids

Some auctions are held outside the house itself, where buyers gather and submit bids. In other scenarios, auctioneers hold so-called “ballroom sales” in a separate location, where multiple houses are auctioned off at the same event. Another convenient method is to accept advance bids online, via text, or via telephone. Some auctioneers combine two or more methods to maximize their pool of prospective buyers.

What does it cost to sell a home at auction?

As anyone who has sold a home can tell you, there is always some degree of cost involved with selling — whether that’s agent commissions, staging, renovations, or just the time required to dedicate to the process. Auctioning a home also has its own price tag.

Pasternak estimates that an auctioneer can cost anywhere between $200 and $1,000, depending on your location, the property’s condition, and your real estate agency. “Generally, this means the cost will come out of the commission amount paid to the agency when they sell the home,” he says. “It’s a good idea to gain knowledge on auctioneer costs before indulging in setting up your property for auction.”

In his experience buying and selling in Texas, Minniti says you can expect to pay between 2.5% and 10% of the sale price to the auctioneer. Additionally, you may have to pay for advertising costs and hire an attorney to deal with the legal details of the auction. In an auction home sale, however, the buyer typically covers the real estate commissions and pays a non-refundable deposit.

Pros and cons of going the auction route

If you’re still on the fence, it might be a good idea to compare the pros and cons of selling a home at auction.

Pros

  • You can sell your home quickly, which can be helpful in a slow market.
  • Depending on the type of auction, you don’t have to settle for below asking price, as multiple buyers will typically make offers in a bidding war.
  • Your home will be visible to pre-qualified, serious buyers.
  • There’s no need for scheduling or preparing for showings or open houses.
  • You’ll have more privacy without the need to put a sign in your yard or list your property on the MLS (multiple listing service).
  • You’ll avoid the hassle and uncertainty of back-and-forth negotiations with buyers.
  • The auction house handles all marketing, promotions, and paperwork, saving you (and your agent) time and money.
  • You’ll know exactly when your home will sell, without having to wait days, weeks, or months for a buyer.
  • The sale is not contingent on an appraisal or inspection.
  • The home is typically sold “as is,” so buyers don’t ask for repairs.

Cons

  • There will be a smaller pool of buyers, as only qualified, ready-to-close buyers are allowed to bid.
  • There’s a chance you may get less than expected or less than market value (auction terms and types vary).
  • Auction costs can exceed traditional agent commissions.
  • There is a risk that no one will buy your home, and a “no-sale” event can harm property value perceptions.
  • You will still have to cover the auction fees even if your home doesn’t sell.
  • In some cases, there’s a perception that auction homes are all distressed properties.

Alternatives to selling a home at auction

Auctioning your home can be an attractive means of expediting the sale while still garnering a fair market price. However, if you decide that an auction isn’t for you, there are several other viable ways to sell outside of a traditional listing that still offer many of the same benefits.

  • Franchisors: These are real estate investment companies that franchise their model under their company name. They typically buy homes “as is,” have them fixed up, and either sell or rent. Examples of some of the more established companies include We Buy Ugly Houses, HomeVestors, and We Buy Houses.
  • House flippers: These investors buy homes in need of repair, renovate them, and then sell them quickly as turnkey properties. They’re looking for a bargain that doesn’t need extensive repairs so they can maximize profits. Some examples include FortuneBuilders, The Property Flip, and FlippingJunkie.
  • Buy-and-hold investors: This type of buyer usually buys a home and then converts it into a rental property. A buy-and-hold investor will sell the property once it has appreciated in value enough, as part of a long-term investment strategy. These investors often hold a property for 10 years or more. Examples of buy-and-hold companies include Invitation Homes, Tricon Residential, American Homes 4 Rent, and Progress Residential.
  • Trade-in companies: A trade-in company helps people buy, and move into, their new home before they sell their current home. This model is somewhat like a swap that relieves sellers from paying two mortgages while waiting for their current house to sell. Trade-in companies will usually buy your current home for an agreed-upon sum if it does not sell on the market within a designated period of time. Examples include HomeLight Trade-In, Knock Home Swap, Orchard, and Ribbon.
  • iBuyers: This is perhaps the most recognized type of house-buying company. Most iBuyers use an automated valuation model (AVM) to generate an all-cash offer. Their offers are typically more competitive than most franchisors or house-flipping groups, relying on volume for their profits. iBuyers typically charge a service fee of about 5%-6%, similar to a real estate agent’s commission. Example companies include Opendoor, Offerpad, RedfinNow, and ExpressOffers.

Another convenient and practical option is Simple Sale from HomeLight. It’s a fast, free online tool that provides a competitive, no-obligation cash offer to buy your home. Simple Sale also compares cash offers with what a home seller might get by listing with a traditional real estate agent or a discount agent.

HomeLight’s Simple Sale is available in nearly every part of the United States. Simply enter your address at HomeLight.com/simple.

Do you need a real estate agent to sell at auction?

Although it’s not a requirement, the experts agree that it’s in your best interests to have an experienced real estate agent representing you when selling a home at auction. As Pasternak points out, real estate agents have connections with multiple sellers from the auction itself, so they can help take deals over the finish line and negotiate a good closing cost outside of the bidding process.

According to the National Association of Realtors, there are several key benefits to partnering with a real estate agent in this situation. Before, during, and after the auction, the agent will assist with these key functions:

  • Helping you to choose the right auction house and auctioneer to sell your property.
  • Performing market analysis and providing the auctioneer with a fact sheet for your property.
  • Obtaining professional photographs of your home.
  • Make recommendations for any repairs or maintenance of the property prior to going to auction.
  • Ensure that all bidders go through the pre-qualification process.
  • Keep you apprised of feedback and progress.
  • Assist with the contract signing.
  • Guide you through inspections, financing, insurance, and other post-auction tasks.
  • Accompany you to the closing appointment.

For best results at auction, you should look for an agent who has experience with this type of sale — and with your type of property. HomeLight’s Agent Match platform makes it easy to find a great fit. Just enter your address, answer a few simple questions, and we’ll provide a list of agents in your area who can help make your auction sale a success.

Is an auction right for your home sale?

Your selling situation is unique to you, but if you answer “yes” to a majority of these questions, there’s a good chance that your property is a good fit for an auction sale:

  • Do you need cash proceeds from the home sale right away?
  • Is the market changing fast and do you need to sell quickly?
  • Is home inventory low and are buyers aggressively competing for property in your market?
  • Are you carrying excessive costs maintaining the property?
  • Have you already found a new home?
  • Do you need to liquidate an estate or a home you inherited?
  • Are you moving out of state in the near future?
  • Do you have a listing that hasn’t generated much activity and is about to expire?
  • Are you (or your agent) fairly confident that an auction would bring a fair market price for your home?
  • Have you already bought another house and don’t want to carry two mortgages?

By being honest with yourself in answering these questions, carefully weighing the pros and cons, and soliciting the advice of a trusted real estate agent, you’ll be in a good position to make an informed decision about whether selling your home at auction is the right path for you.


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