I bought a new house and now I need to sell my old one. I am thinking about doing a house auction rather than selling it through an agent.
Does anyone here have any experience with house auctions? I live near Raleigh, NC and the house is worth around $125,000.
You need to check about local and state laws. In some places such an auction would be considered a lottery and therefore illegal.
They had one in my neighborhood.
I only learned about it from the signs the owner put up around the neighborhood. We showed up, the house was open for a few hours beforehand to tour and see it, and they opened the bidding a few minutes after we showed up.
I was seriously tempted to bid, even on such short notice. The final bid was ridiculously low for a house in that condition in that area. If I had known about before hand, I would have arranged financing, bought the house for at least $50K less than its market value, and made myself a bundle.
It turned out that the bidding did not reach the owner’s minimum, and he did not sell it to the highest bidder, so I would not have been able to get started on my real estate empire. I spoke to the auctioneer and the homeowner afterwards.
The owner inherited the house when his parents died, and was looking to unload it fast and cheap, and save money on a real estate agent. Which was stupid, as houses in my area sell like hotcakes (we bought our house two blocks away about four hours after it went on the market).
The whole auction did not seem like it had been well set up, or enough preparation done. Thus it did not go well.
FWIW. IANARealtor.
It depends on the housing market in your area, but it does not seem like a good idea to me. Good luck anyway.
Regards,
Shodan
thanks for the reply.
I’m sure if I did it I would have some people showing up thinking they could get a great deal but I will set a good minimum price. I don’t need to sell it in a hurry. If the auction doesn’t work it won’t be a big deal, I can always list it with an agent.
If your intent is to save money by not having to pay a realtor’s commission, which is generally 5-7%, be aware that auctioneer’s fees can reach up to 10% or more. If you just want a quick sale, it may be easier and cheaper to just price your house a bit below market value.
A properly done auction has the advantage of pre-qualified bidders. That is, you can be fairly certain that the winning bidder will be able to pay for the house because he or she will have had to make an earnest deposit with the auctioneer beforehand and the auctioneer will have confirmed that the bidder can arrange financing. You do not want to have an eBay-like auction where any ass clown can bid whether he has a dime in his pocket or not. This is why auctioneers take a large chunk of the sale price; they do more than just talk really fast.
A little further to the 10% auctioneer’s fee:
Sometimes the fee is added to the winning bid and is payable by the buyer; other times it is payable by the seller. It depends upon the deal you make with the auctioneer.
It might sound like a good idea to make the buyer pay the auctioneer’s fee, but savvy buyers will take this into account and bid accordingly. If your house is worth $125,000 and the buyer has to pay a 10% fee to the auctioneer, a smart buyer would not bid more than $112,500 or so. Whether the buyer or you actually pays the fee, it is really coming out of your pocket in the end.
I wouldn’t sell it without having a real estate lawyer do the deal. What are you going to do about liens & title insurance?
I think that ebay lists some houses.
Bear in mind that whether the house sells or not you will still normally be responsible for all the advertising and associated marketing costs incurred by the auctioneer which can reach into the thousands of dollars. Auctions are good for quick sales or scenarios where properties might otherwise have challenges gettiing interested purchasers to come forward, but they will rarely maximize the dollar value of the properties or the dollars to the seller even accounting for an agent’s commission as auction buyers will adjust their bid to account for the auction fee which is often greater than the agent commission in most cases.
IMHO, it’s probably a bad idea to auction the house, simply because that’s not the way most people buy houses. It seems to me it’s the conventional families – mommy, daddy & kids – who will pay top dollar for houses. An auction will bring out bargain-hunters, etc.
The other thing about auctions I’ve noticed is that sellers often try to rig things to their advangtage by setting really high reserve prices and giving buyers extra chances to outbid eachother. This turns off a lot of buyers IMHO and is unproductive. It seems to me you’re better off with a low reserve price, sealed bids, etc.
But as others pointed out, probably the best way to sell your house fast (and for a decent price) is just to put it on the market for a little bit less than the market value. (And for goodness’ sakes don’t fool yourself about your house’s value!!!)
If I do this I am not going to hire someone to auction it. I will simply do it myself. I know that I still need a lawyer to handle the paperwork for closing.
I’m not looking to make a lot of money , just get fair market value. As I mentioned above I’m not in a hurry to sell the house so if the auction doesn’t work out then it’s not a problem. My main reason for doing an auction would be to not pay the real estate commission. But I know that there will be other costs for an auction instead of that commission.
It is quite possible to auction it yourself as you are intending, but to be frank without using a real estate agent it is unlikely you are going to get top dollar for your house. The reason is quite simple. The large majority of qualified buyers that are in the mode to pay top dollar for a house in the $ 125,00 price range are a family being carted around in an agent’s car, or are otherwise being assisted by a real estate agent.
Some prospective buyers may happen upon your self placed auction ad by accident or see the auction sign in your yard but 80%+ of qualified purchasers will never even know your home exists as a purchase opportunity, and the ones that will be interested in an auction are typically more sophisticated buyers or investors that will not be all that interested in paying you a “fair market” price.
Not to mention the fact that in many states you must be properly licensed to conduct an auction. Your plan needs much, much more research before you seriously consider going forward.
A bit more elaboration and comments on astro’s points:
Most people go to real estate auctions with the intention of buying a house for less than “fair market value” as they see it. A good, well-paid, professional auctioneer can prevent this, but if your whole point is avoiding realtor commissions then this isn’t an option.
If you were to auction it off yourself, maybe you’ll get your “fair market value” and maybe you won’t. I think it’s likely you’ll get maybe 90% of the value you want. But a good, professional realtor might get you 100%+. Typical commissions are 6% (sometimes split between two brokers) so you can do the math from there…
The other added benefit of a professional realtor is all of the headache you’ll save. These guys do this for a living, and their whole job is to make the process as painless as possible for you. Ask any of your friends who have sold a house themself how much effort went into it, that can give you an idea of what you’re headed into.
Also, as Doctor Jackson pointed out, it may not even be legal to do it yourself…
Finally, I’m a commercial real estate appraiser. If anyone here is interested in learning more about “fair market value” I’d be more than happy to start some kind of “ask the real estate appraiser” thread, but I wouldn’t want to hijack this thread. In my own experience, there’s a whole lotta ignorance out there about “fair market value” of real estate…
I know the OP is in the US, but i just wanted to point out that in some places buying houses at auction is quite common. In Australia, for example, many properties are sold at auction, and this includes both cheaper places and multi-million dollar mansions.
The person selling the house generally sets a reserve price, below which the house cannot be sold. This price is not made public, and none of the bidders know whether the reserve has been met until the final bid is taken. Sometimes, when the final bid is just below the reserve price, the high bidder and the property seller will sit down together and see if they can reach a deal on the property.
If I don’t get the price I want then I don’t sell the house. So there isn’t really a lot of risk here. I already know the hard part would be to get people to make bids. I would have to run ads so that would be a cost to me.
I would be surprised if auctioning a house is illegal here in NC. Technically it’s the same as selling a house without a real estate agent which people do all the time. The only difference is that I would look at mulitple bids at one time and simply pick the highest bid.
I’ll tell people up front not to waste time putting in low ball bids.
The thing is, if you refuse to take any risk, then nobody’s gonna make a reasonable bid.
And technically, by your logic, auctioning a car is the same as selling it without a car dealer, which people do all the time but it’s still not legal in many states without an autioneer’s license.
I checked and it’s legal in NC.
You have to be a licensed auctioneer only if you are selling land or property you do not own.