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Rrah:
Thank you for chiming in with some more details about selling a home by auction. I have been taking notes! Your posts are an incredible help to people like myself who are still trying to decide the best way to go. One reason I am considering an auction (and I stated this in my original post, above) is that when my husband sold his last house, the first two deals fell through. It took six months (three tries) before the house actually sold--and this was in a HOT market! The market in my area is a lot slower now.
Rrah:
Thank you for chiming in with some more details about selling a home by auction. I have been taking notes! Your posts are an incredible help to people like myself who are still trying to decide the best way to go. One reason I am considering an auction (and I stated this in my original post, above) is that when my husband sold his last house, the first two deals fell through. It took six months (three tries) before the house actually sold--and this was in a HOT market! The market in my area is a lot slower now.
Auction sales also fall through.
Buyers' remorse after auction fever is not at all uncommon.
I was one of those 2 people. We sold our previous home via an auction. You are using the terms "bare minimum" and "reserve" incorrectly or misinterpreting them to persuade people that this is not a good way to sell. First, virtually EVERY seller, no matter the type of sale, has a bare minimum. Banks, people, estates, etc. all have a minimum. Be forthright about that. It's not particular to a real estate auction.
I don't know if you're referencing my post on the removal of the reserve or not. Yes, in an auction you WOULD remove the reserve. It's a different buyer psychology at play. We removed the reserve because we met the price we wanted. Removing the reserve plays an important psychological role in an auction environment. It's tells the buyers that they either make an offer or lose the property. It's time to be serious about the bid. This is their only chance. So yes, the seller can, and often does, remove the reserve to take advantage of the auction psychology. We sold above the reserve price. How many buyers have you had over the years that messed around with making the offer and lost a property? How many buyers have you had over the years that made a low offer and lost the property. The "auction" psychology eliminates the messing around factor-Bid (or make an offer) or lose it. People like to win.
I wish I could find the paper work we received at the time as I don't recall some of the specific numbers that indicate an auction often nets the seller as much or more than a traditional real estate agent sale. Obviously a foreclosure auction is a different thing. My husband and I weighed the pros/cons of an auction after having listed the house for three or four months the traditional way. We received one offer during that time that did not close. The buyer was out of the country and a bit leary of buying sight unseen despite family members telling her it was a perfect house and worth the price. I do know for a fact that we netted the same (or maybe a bit more), via the auction than we would have with the traditional sale. Our reserve was only known to my husband and myself, and we calculated it so we came out even or ahead.
BTW--don't start telling me about it being overpriced, etc. when it was listed. You have no idea what the market was at that time (9/11 for one) and in that location. We studied it and knew of some other things going on in the area that impacted the market. We were reasonable sellers in pricing the house. We knew we didn't want 2 mortgages in 6 months as we were definitely moving. We were motivated but had some time. We were also willing to do whatever it took in terms of closing dates, etc. to get it sold. Having been an agent, I can say we were pretty darn good sellers.
As for that smaller buyer pool--yes, the pool is smaller, but it is also the cream of the buyer pool crop so to speak. They are "ready, willing, and able" to purchase without a mortgage. I'd rather have 5 premium buyers than 50 "maybe" buyers.
A couple things I didn't mention in my previous post--I don't think. VERY often real estate auction companies are also RE Brokers and belong to the MLS (again, this will vary with location/state). Properties will be listed in the MLS in those circumstances. Our contract also allowed us to sell it before the auction if a buyer wanted to secure the property. My local real estate auction company also does the same. The ads state that the property maybe sold before the auction. That was part of our contract. Our Broker/auctioneer also was prepared to sell it after the auction to any of the bidders if the auction was not successful.
I was an agent for several years. I listed and sold properties the traditional way. I would do an auction again in the same situation and set of circumstances. When, and if, we ever decide to sell our current home we will sell via auction or using a limited service broker. Sorry old RE friends.
Thanks for the additional details - they certainly clarify the matter.
as to auction vs traditional, please don't take it as any potshots or subterfuge coming from me. Auctions are rarely used in my market, and used primarily for foreclosures and unique properties with that intrinsic value.
I would say our market is stable. It is not a hot market like California or closer into D.C., but our community has seen some modest growth. We haven't seen the high unemployment that other parts of the country (e.g., the rust belt--places like Cleveland!) have. For a variety of reasons, it is highly unlikely that the military base (Naval Air Station in Patuxent River, Md.) would ever close. In fact, as other bases across the country have closed, they keep moving the jobs here.
The townhomes that are for sale still seem to go for about $230K. They also sit there for a very long time. I'm certain it wouldn't take $80K to fix up our house, but even if we only paid $30K, there is still the issue of our next door neighbor, who doesn't keep up her house. Unfortunately, we can't do anything about that.
Based on what you’ve said I’d bet a “We buy houses†person would give you $158K. But list it with an agent for $195K or so and it probably sells quick and you net over $180K after commissions.
I've attended numerous real estate auctions and I've never heard it termed as "removing" a reserve. They may announce when the reserve has been met, but that's a different animal than to truly remove the reserve (lest you have bidders backing out).
Given that many people attending auctions are looking for a deal, most of the auctions I've attended have sold for less than what I thought was market value had it been traditionally marketed. However, in fairness, given the right buyer pool I have also seen auctions where the sale price was pretty close to market value. The downside to buying at auction for a good price is that assessor's usually won't consider that price a market value price for assessment purposes since it doesn't meet the definition of market value.
Jack--you are correct. I may have used the wrong terminology. The auctioneer could have announced that the reserve was met or that we, mid-auction, switched to a no reserve auction. People's bids are locked in though so they can't back out. It's a gamble to do a no reserve auction as one must then sell at any price.
For us, our final net was the same or slightly higher than if we had sold it in the traditional way. I know you understand what I mean by net, but I'll include a basic example of math for those that don't.
Typical real estate sale on a $200,000 house (I like easy numbers).
(Sales price)200,000 - 6% commission (going rate in my area)= $188,000 net.
Auction sale on the same $200K house.
(Sales price) $190,000=$190,000 net.
All other closing costs will be roughly equal-taxes, title, etc.
Real estate auctions can be a gamble for and may not be right in all circumstances, but given the entire context of our last sale, it was a no brainer for us. The prospect of 2 mortgages at that time would have eaten up any additional $ we MIGHT have made by waiting. As I said previously, we had a set of circumstances that made it very advantageous for us to sell via auction.
Jack--you are correct. I may have used the wrong terminology. The auctioneer could have announced that the reserve was met or that we, mid-auction, switched to a no reserve auction. People's bids are locked in though so they can't back out. It's a gamble to do a no reserve auction as one must then sell at any price.
For us, our final net was the same or slightly higher than if we had sold it in the traditional way. I know you understand what I mean by net, but I'll include a basic example of math for those that don't.
Typical real estate sale on a $200,000 house (I like easy numbers).
(Sales price)200,000 - 6% commission (going rate in my area)= $188,000 net.
Auction sale on the same $200K house.
(Sales price) $190,000=$190,000 net.
All other closing costs will be roughly equal-taxes, title, etc.
Real estate auctions can be a gamble for and may not be right in all circumstances, but given the entire context of our last sale, it was a no brainer for us. The prospect of 2 mortgages at that time would have eaten up any additional $ we MIGHT have made by waiting. As I said previously, we had a set of circumstances that made it very advantageous for us to sell via auction.
In your case, how was the auctioneer paid? Around here, most auction houses charge the seller and also charge a buyer's premium--usually 10%.
The bottom line is that as long as you are satisfied with the results, an auction can be an appropriate method of sale.
Speaking of gambles, several years ago there was a case in Michigan where an auctioneer persuaded a seller to auction off their significant island property without a reserve price. The auctioneer told them that--not to worry--he would have a shill buyer in the audience to bid the price up in excess of what they wanted their reserve price to be. The seller agreed.
On the day of the auction, attendance was low. The auctioneer's "helper" failed to show up, too, and the property was auctioned off for a very low price. The seller then sued the auctioneer but the court chastised the seller for trying to enter into an illegal agreement to rig the auction with a shill buyer. The case was thrown out and the seller was out of luck.
If anyone is going to consider an auction, make sure that you stipulate a reserve price...otherwise be prepared to suffer the consequences.
Last edited by jackmichigan; 01-24-2018 at 05:55 PM..
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The seller agreed. 
