Not just for luxury homes or distressed properties, residential real estate auctions are gaining attention as an alternative approach to buying and selling all kinds of properties from single-family homes to condominiums and townhomes, according to the National Association of Realtors.
Auctions may not be as readily understood in the home real estate market but there are some advantages to both the buyer and the seller including a definitive timeline and letting the auctioneer handle the details.
“It’s a really simple and effective way to sell a home,” says Rick Levin, founder of Rick Levin and Associates, residential auctioneers in the Chicago area.
According to the National Auctioneers Association, home auctions were growing in 2007 before the real estate market took a turn and they continue to grow.
One of the reasons both buyers and sellers are finding auctions attractive, Levin says, is transparency and efficiency.
Information up front
One of the first steps to selling a home through auction is putting together a due diligence packet, explains Michael Fine, principal managing broker of Fine and Co., a national real estate auction and advisory service. This packet of information includes an assessment of the home’s value, inspection report, title and survey reports and a purchase contract.
The packet is offered at the home’s open house event and gives potential buyers all the information they need to decide if they would like to bid on the home and time to review the documents with an attorney before the bids are due.
When working with a real estate agent the same information is involved when selling a home, but is typically gathered later in the process after an offer has been made on the home.
Providing a home appraisal as the first step gives the seller and the buyer the information they both desire up front, explains Kimberly Weiner, operating officer for Rick Levin and Associates.
“We cut right to the chase,” she says of auctioning homes and determining fair market value immediately.
While there are some similarities between buying and selling through a real estate agent, through home auctions, Weiner says, much of the work is left to the auctioneers and it can be handled in a few simple steps.
For the seller, after determining fair market value with the auctioneer and getting their home ready for the open house, there is little work needed until bids come in. During this time the auctioneer is working to aggressively market the property, actively seeking buyers who would be a good fit for the home, says Weiner.
Since homes are typically only shown during a pre-auction open house, sellers needn’t worry about the hassle of having their home constantly show ready.
“Nobody’s calling to see the home in the middle of dinner and nobody has to pack up the family and get out when someone wants to see the home,” Weiner says of the ease of the auction process.
Tightened timeline
One of the major benefits of an auction to the seller and the buyer is a pre-determined timeline.
When a seller works with a real estate agent there is some uncertainty to how long a home will take to sell. Sometimes they are sold in a matter of days and others linger on the market for months. In some instances obtaining the inspections and reports take longer than anticipated and the results of the reports might bring about some re-negotiation from the potential buyer.
In contrast, when selling through auction the timeline is set at the beginning and the reports have already been completed, explains Weiner.
Several open house events are scheduled and the seller works with the auctioneer to determine a date when the auction will be held, when bids are due, and determining a closing date.
While the timeline may vary, a home auction can typically begin and end within six to 10 weeks and close within another 10 to 45 days, Fine says.
That certainty, Weiner says, gives buyers and sellers a peace of mind and the ability to quickly move into their new home.
Going once, going twice
So how does the actual auction work?
The seller determines if they will have a reserve sale — entertaining bids to accept or reject; a sale without reserve where the seller will take the highest bid; or a disclosed minimum bid auction where the seller sets a minimum amount where bids will begin.
An auction could take place at the home for sale or a meeting room at a hotel where bidders come and participate in a live auction. They also can be conducted entirely online. Another option is to combine the two allowing online bids in real time during the live auction. Yet another approach is a sealed bid auction where all offers are turned in by the deadline and opened in private by the auctioneer and seller.
The fees and commissions involved in a home auction vary by auctioneer, the type of auction and the property itself. Sellers should expect to pay up front for marketing costs, gathering reports and having an inspection. However, buyers are likely to recoup the costs in the home’s sale as well as in the time saved, Fine says. Sellers, he says, should check the contract provided up front to see if any additional costs are added such as the seller asking the buyer to pay the auctioneer’s commission.
This is the first in a series of stories explaining the residential auction process.
Next week: The four types of auctions explained.
