Editor’s note: This is Part 1 of a two-part series. See Part 2: "5 tips when buying at real estate auction."
If the for-sale sign in your yard has become covered with cobwebs over the months, perhaps it’s time for another approach: auctioning your house.
Auctions are becoming an increasingly popular option, auctioneers report — not only because of what the housing slump has done to traditional marketing efforts, but also because auctions have become a more familiar concept to the public at large.
"I think eBay has raised the image of the auction in the mind of the consumer," said Chicago auctioneer Rick Levin. "Over the last decade, almost everybody, anecdotally, knows somebody who has sold something on eBay. So it’s not that great a leap any more to suggest a piece of real estate."
Not that a house is the equivalent of a Pez dispenser or a Miley Cyrus poster. But auctions are an increasingly viable means for finding homebuyers, and you certainly don’t have to be in foreclosure to participate, according to Levin.
"Auctions force people to be decisive," said Chris Longly, deputy executive director of the National Auctioneers Association in Overland Park, Kan. "For sellers who have had their homes listed for a year, they can be a comfort because the auctioneer can tell you, ‘On Thursday at 10 o’clock, I am going to sell your home.’ "
Five things for home sellers to know about real estate auctions:
1. The auction house should hold a real estate license that entitles them to act as the homeowner’s agent in the sale, Levin said. But increasingly, auctioneers are working with real estate brokerages, he said. In the past year, his company, Rick Levin & Associates, has joint-ventured with several Chicago-area real estate companies to auction properties.
"For a long time, real estate agents were competitors (to auctioneers), and now they’re partners," Longly said.
Levin said auctioneers’ compensation for conducting sales tends to be comparable to commissions paid to agents, sometimes slightly more.
2. Unlike so-called "sheriff’s auctions," or foreclosure sales in which the bidders usually haven’t been inside the homes, in regular auctions the auctioneer’s sales team will conduct several open houses so that potential buyers can inspect them beforehand, he said. They also will provide packets of information to bidders that explain the process and the terms of the sales contract.
3. One way auctions work — and perhaps the most familiar to the public — is through an "absolute" sale, Levin said. "That means, no matter how low or how high (the bids are).
"However, with this method, most sellers are scared that their property is going to sell too low," he said. "The irony, though, is that this way, when we sell absolute, typically brings the highest price. The allure of low prices actually brings high prices because it brings out lots of buyers."
4. So, to reassure those worried sellers, the auction business has developed "reserve" sales. Levin said, however, that this method may comfort the seller but irritate the buyer.
"In these, the seller reserves the right to accept or reject any offer. But the problem here is, the buyer says, ‘I don’t want to drop everything I’m doing and (make the financial arrangements for such a sale) if the seller can just reject the offer.’ "
These sales, then, tend to have lesser results, he said.
5. A third method is to sell at auction through a "published minimum bid."
This essentially is a starting point for bidders. "It’s low enough to excite buyers, yet high enough to protect a seller’s stomach-churning," he said. "The house here will be sold to the highest bidder.
"We’re doing a lot of these now," Levin said. "Then the seller knows what their worst-case scenario is."
Mary Umberger is a freelance writer in Chicago.