# Why is auction a relatively rare way to sell a house in the US? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [July 10, 2016, 9:14am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542 "2016-07-10T09:14:19Z")\ **Posts on this page:** 12\ **Page:** 2
**Author:** ![JohnT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/johnt/32/15048_2.png) [@JohnT](https://boards.straightdope.com/u/JohnT)\ **Post date:** [July 11, 2016, 4:27am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/21 "2016-07-11T04:27:34Z")
> [@Eliahna](#): > > Australia has been in a housing construction boom that seems to have peaked in 2014, with around 190,000 dwellings commencing construction that year; a new record. New housing estates are sprawling every which way in my part of the country. Which is commiserate with projected household growth in Australia, I see. Are new homes sold at auction, or only existing housing stock? > **[Australian Bureau of Statistics](https://www.abs.gov.au/)** > > Australia's national statistical agency providing trusted official statistics on a wide range of economic, social, population and environmental matters. ---
**Author:** ![Kiwi\_Fruit](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kiwi_fruit/32/12_2.png) [@Kiwi\_Fruit](https://boards.straightdope.com/u/Kiwi_Fruit)\ **Post date:** [July 11, 2016, 4:31am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/22 "2016-07-11T04:31:27Z")
It seems that when there is a housing boom that auctions are favoured by the agents and sellers. When the average price of houses is going up by $1500 to $3000 a week as it is in some New Zealand cities at the moment, you’d be a mug to put a fixed, maximum price on your house when you are selling. Pre-approval of loans mean that someone paying cash has no advantage over someone borrowing the money. As the average value of houses in Auckland is around $800,000 which is something like 10 times the average household income, most owner-occupier type buyers are borrowing the money anyway. Property investors probably even more-so. When you can make around $3000 a week just from the rising market it makes sense to borrow your million to plunk down for the house. Get an interest only mortgage for the 80% balance after your 20% deposit, keep it for a few months and then profit when you sell it. Some off the issues that are important in the US don’t apply in Australia or NZ. As **Lord Feldon** wrote, we have the Torrens land registry system here so title is guaranteed. Many people will get a [LIM (Land Information Memorandum)](https://www.property.org.nz/Section?Action=View&Section_id=144) before putting in a bid, or if buying by private treaty it will be a condition in the provisional sale and purchase agreement. In the city where I live, the LIM costs $370 for standard processing or $485 if you want it within 3 working days. They may also get a building inspection done. Up front costs may be up to $1000 even if you don’t end up getting the house at auction. That sucks and there have been suggestions of ways to spread the cost around buyers, but I think it’s in the “too hard” basket at the moment. For those reasons, if the market is stable or dropping, then marketing at a fixed price is more attractive. No uncertainty at auction if it will sell or not and buyers are more likely to make a conditional offer which they can back out of if building reports are bad or the seller won’t drop the price because you’ve found a bad HVAC unit or termites in the deck. ---
**Author:** ![stui\_magpie](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stui_magpie/32/11010_2.png) [@stui\_magpie](https://boards.straightdope.com/u/stui_magpie)\ **Post date:** [July 11, 2016, 4:44am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/23 "2016-07-11T04:44:00Z")
> [@JohnT](#): > > **jtur88** described the most common process of housing auctions in the United States, but another difference, possibly, vis-a-vis the United States and Australia may be the ease of installing new housing and the availability of arable space. Here in Texas I see a new neighborhood go up every month, every week. In San Antonio alone we are expected to install up to a quarter million housing units over the next 30 years. **Why auction existing when you can just buy new?** Location, location, location. The new housing estates that are constantly popping up are stretching further and further from the city centre. The old established suburbs have all the amenities that the new areas lack, so the new suburbs tend to be where the first home buys focus as it’s cheaper. ---
**Author:** ![Ken001](https://avatars.discourse-cdn.com/v4/letter/k/43a26b/32.png) [@Ken001](https://boards.straightdope.com/u/Ken001)\ **Post date:** [July 11, 2016, 6:34am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/24 "2016-07-11T06:34:03Z")
> [@Kiwi\_Fruit](#): > > It seems that when there is a housing boom that auctions are favoured by the agents and sellers…in New Zealand. > > Pre-approval of loans mean that someone paying cash has no advantage over someone borrowing the money. lance after your 20% deposit, keep it for a few months and then profit when you sell it. > > Some off the issues that are important in the US don’t apply in Australia or NZ. As **Lord Feldon** wrote, we have the Torrens land registry system here so title is guaranteed. > > Many people will get a [LIM (Land Information Memorandum)](https://www.property.org.nz/Section?Action=View&Section_id=144) before putting in a bid, or if buying by private treaty it will be a condition in the provisional sale and purchase agreement. In the city where I live, the LIM costs $370 for standard processing or $485 if you want it within 3 working days. They may also get a building inspection done. Up front costs may be up to $1000 even if you don’t end up getting the house at auction. > > For those reasons, if the market is stable or dropping, then marketing at a fixed price is more attractive and auction activity drops off. I’m a conveyancing lawyer of 30 years experience. Kiwi Fruit has accurately stated the New Zealand position. Hot markets favour auctions. The true reason for the popularity of auctions here - and probably in Australia - is that real estate agents love them. They use glossy advertising and the agent’s name and face is repeated ad nausem. The key thing is that the vendor pays for the auction advertising on top of the normal real estate sales commission. And if the property doesn’t sell, the vendor is already locked into an exclusive listing contract with the agency. The agents can’t lose. ---
**Author:** ![Ken001](https://avatars.discourse-cdn.com/v4/letter/k/43a26b/32.png) [@Ken001](https://boards.straightdope.com/u/Ken001)\ **Post date:** [July 11, 2016, 6:44am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/25 "2016-07-11T06:44:07Z")
Just to add: Real estate agents promote auctions in towns and small cities even though the local market is flat. The reason they can do this is because our daily news has been obsessed with one hot market - our largest city Auckland. The average person gets the impression that houses are best sold by auction but the reality is that by far most sales are achieved by normal contract. A couple of quick examples - at one auction of five houses, one sold. My selling clients were in shock having been assured of how clever auctions were. At another auction of five houses, none sold. At both auctions there were almost no bids for any of the properties. ---
**Author:** ![hogarth](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hogarth/32/1773_2.png) [@hogarth](https://boards.straightdope.com/u/hogarth)\ **Post date:** [July 11, 2016, 10:40am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/26 "2016-07-11T10:40:53Z")
> [@Kiwi\_Fruit](#): > > It seems that when there is a housing boom that auctions are favoured by the agents and sellers. When the average price of houses is going up by $1500 to $3000 a week as it is in some New Zealand cities at the moment, you’d be a mug to put a fixed, maximum price on your house when you are selling. As I mentioned, it’s fairly common for houses to sell above the asking price in Toronto, particularly in “hot” neighbourhoods. The asking price is certainly not a maximum. ---
**Author:** ![Miss\_Mapp](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/miss_mapp/32/369_2.png) [@Miss\_Mapp](https://boards.straightdope.com/u/Miss_Mapp)\ **Post date:** [July 11, 2016, 1:10pm UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/27 "2016-07-11T13:10:24Z")
> [@Eliahna](#): > > According to the in-laws, auctions are rare, bordering on unheard-of in the UK. It’s something they found weird when they came to live in Australia (circa 10 years ago). This surprises me. Often when I’m in the UK, flipping through channels in hotel rooms, I end up watching a reality show in which people buy derelict houses at auction and fix them up to resell. There must be at least enough auctions to sustain the show. ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [July 11, 2016, 1:23pm UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/28 "2016-07-11T13:23:21Z")
In the US realtors try to get purchasers to maximize their spending. They also aren’t auctioneers. I don’t think they’d cooperate with an auction environment. We also have a lot of first time home buyers, and a lot of them prefer new homes, they tem not to know much about houses, want to use realtors to look at a lot of houses before purchasing, and end up paying a premium for them. The new home builders would prefer that to an auction which will tend to attract bidders looking for deals and spending less. A lot of it is tradition, if more houses were sold by auction we’d just see the realtors become professional bidders and it would happen more often. There would be complications with the way we do things, purchasers often don’t have a mortgage secured ahead of time, following the real estate collapse a few years back the value of house isn’t considered the secure collateral it used to be either. ---
**Author:** ![Aspidistra](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aspidistra/32/3894_2.png) [@Aspidistra](https://boards.straightdope.com/u/Aspidistra)\ **Post date:** [July 11, 2016, 10:41pm UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/29 "2016-07-11T22:41:10Z")
> [@stui\_magpie](#): > > Location, location, location. > > The new housing estates that are constantly popping up are stretching further and further from the city centre. The old established suburbs have all the amenities that the new areas lack, so the new suburbs tend to be where the first home buys focus as it’s cheaper. Yes, the really Australian thing to do, if you want a new house and are flush with cash, is to buy the oldest crappiest house you can in a nice suburb, bulldoze it, and build your own. In fact, don’t the new home buyers in the outer suburbs do pretty much the same thing? (except without the dozer). You don’t buy a house, you buy the _land_, then contract with the developer who sold you it what sort of house you want, based on their display homes. A developer buying land in a nice suburb of Melbourne would never put a freestanding house on it - the land’s too valuable. They’d build a block of flats (which, to go back to the OP, wouldn’t be auctioned, but probably sold before they were built, “off the plan”) ---
**Author:** ![StGermain](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stgermain/32/2868_2.png) [@StGermain](https://boards.straightdope.com/u/StGermain)\ **Post date:** [July 12, 2016, 12:51am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/30 "2016-07-12T00:51:24Z")
I bought my [small farm](http://i79.photobucket.com/albums/j127/StG61/Front_zps23eb5321.jpg) at auction. I went for an antique trunk, ended up with a 150-yr old house and 14 acres. 10% down on the day of sale, closing in 30 days. I go to auctions most weekends. Around here they’re common ways to settle an estate. StG ---
**Author:** ![Pleonast](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pleonast/32/1183_2.png) [@Pleonast](https://boards.straightdope.com/u/Pleonast)\ **Post date:** [July 12, 2016, 1:04am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/31 "2016-07-12T01:04:49Z")
> [@Kiwi\_Fruit](#): > > It seems that when there is a housing boom that auctions are favoured by the agents and sellers. When the average price of houses is going up by $1500 to $3000 a week as it is in some New Zealand cities at the moment, you’d be a mug to put a fixed, maximum price on your house when you are selling. How does fixed maximum pricing work? I’ve never heard of that. In the US, houses for sale have asking prices, but that’s merely the starting point for negotiation. Final sale price can be above or below it. ---
**Author:** ![Kiwi\_Fruit](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kiwi_fruit/32/12_2.png) [@Kiwi\_Fruit](https://boards.straightdope.com/u/Kiwi_Fruit)\ **Post date:** [July 14, 2016, 4:28am UTC](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542/32 "2016-07-14T04:28:09Z")
> [@Pleonast](#): > > How does fixed maximum pricing work? I’ve never heard of that. > > In the US, houses for sale have asking prices, but that’s merely the starting point for negotiation. Final sale price can be above or below it. Sorry, it’s not really maximum price. I should have written asking price. [Previous page](https://boards.straightdope.com/t/why-is-auction-a-relatively-rare-way-to-sell-a-house-in-the-us/759542.md?page=1)