Last updated on June 11th, 2024 at 04:02 pm

Quick Facts

  • Auctioned houses typically sell within an average of 30 days, compared to an average of 90 days for traditionally listed properties.
  • Auctioned properties have an average acceptance rate of offers at around 95%, indicating higher buyer satisfaction with the purchase process.
  • Auctions are becoming increasingly popular with homeowners, with an estimated 10% of all home sales in the US now taking place through an auction.

When you want to sell property, the traditional way of using a real estate agent to list the property on the market comes to mind for most sellers..

Unknown to most, however, is an alternative method that may possibly be another option to consider; property auctions.

Pros of Selling a Home through an Auction:

Exposure to Serious Buyers: One of the undeniable pros of selling a house in an auction is the fact that it attracts very serious buyers.

Auctions imply a strong sense of urgency and competition, which draws the attention of good buyers scouting to make lucrative investments.

This may lead to the creation of a bidding war, pushing prices and creating value for your property.

Quick Sale: For a quick sale with no hiccups, property auctions are your best bet.

Unlike the selling process, which may have delays dealing with negotiations and contingencies, auctions have a definite timeline.

Once the auction is held, the sale is typically finalized shortly after, providing a speedy resolution for both parties involved.

Price Discovery: In a competitive market, setting the right asking price can be quite tricky.

Property auctions eliminate this guesswork, allowing the market to set the real worth of your residence.

Various interested parties will bid against each other, and the highest bidder  determines the final price.

This, therefore, guarantees that you will realize the best possible price for your property.

Problem Properties: Auctions can be especially beneficial for homeowners who have problem properties or those that might need a lot of repairs or renovations.

The auction process appeals to buyers and investors, while traditional buyers will commonly avoid such challenging properties.

This can be helpful in selling your house faster, an advantage that will save time and money in the long run.

Certainty of Sale: There are no two ways about it, the process of selling a home involves numerous uncertainties.

Potential buyers can withdraw or cancel the sale if they face financing problems or if other circumstances change.

In contrast, in a property auction, there is certainty: the winning bidder must go through with the purchase.

The chance of a sale falling through is minimized, and it certainly gives the seller some peace of mind.

Cons of Auctioning a House

Low sales price: While auctions can result in a high sale price, there is always a risk that there might be too few bidders or that the reserve price might not be reached.

In both these cases, the property will sell for less than anticipated.

One must consider very carefully the demand in the market at the moment of the transaction.

Fees and Costs: The auction process for selling a house involves various fees and costs that the seller needs to pay.

You will typically have to pay for auctioneer’s fees, marketing costs, and legal costs.

All these potential fees and costs must be carefully assessed and balanced against the pros of a quick house sale and a better price.

Loss of Control: Auctioning a house means losing some control of the sales process.

The auctioneer and buyers will determine the deadline, terms, and conditions.

This loss of control might not appeal to some sellers who would rather have a hands-on approach and often want to oversee negotiations.

Stressful: The auction process can be stressful for some homeowners.

The bidding process and competitive nature of the process can give rise to anxiety and pressure.

Sellers need to understand whether he or she is comfortable with this sort of method of selling; and also if someone is prepared for the possible attendant stress.

Unfit for Many Properties: Not all properties fit the profile for property auctioning consequences.

Your niche or unique kind of property and undesirable location may not be suitable for attracting property buyers.

It is important that you gauge the buyer’s interest in the market for your property before considering an auction as an option of sale.

How does the process of a house auction work

 Property auctions make it possible to realize the full potential of your property and attract a broad scope of potential buyers by creating an environment of competitive bidding.

Choosing an auction company

The first step in the process of house auctions is choosing a reputable and experienced auction company to handle the sale.

 It is important to research and select an auction company that specializes in real estate auctions and has a proven track record of successful sales.

Agree on a reserve price

Before the auction, you will work with the auction company to agree on the reserve price. This is the minimum price at which you are willing to sell your house.

It acts as a safety net, ensuring that your property will not be sold below a certain threshold.

The reserve price is not disclosed to potential buyers during the auction.

To meet the reserve price: Sellers then will set a reserve price set to protect their interest for the asset in question. At the same time, not having an asking price will attract buyers. 

Should the highest bid equal or surpass the reserve price set on your property, the auctioneer will call out “sold” in connection to your property.

At this point, the highest bidder will be expected to make a deposit, such as typically a percentage of the final sale price.

If the highest bid doesn’t meet the reserve price, then the property won’t be sold outright, and you have the option of re-entering it into an auction or pursuing a different method of selling.

How to set a reserve price 

  • Research the market value of similar properties in your area.
  • Take into account factors like location, condition, and amenities. Seek advice from a real estate agent or auctioneer to determine an appropriate reserve price that is realistic and flexible enough to attract potential buyers and generate interest.

Promote your property

The auctioning company will design a holistic marketing plan to advertise your property and ensure prospective buyers are attracted to it.

This can include online listings, targeted advertisements, direct mail campaigns, and other promotion efforts.

The goal is to drum up interest and create a sense of urgency within potential buyers.

Auction day

The day of the auction will see interested parties gathered in person or via an online platform and then will place their bids.

The auctioneer will start by making an opening statement about the property and, if relevant, about the terms and conditions of interest.

 Bidding then begins, and prospective buyers will make bids in real-time.

The bid

Interested buyers will bid against each other during the auction while placing higher bids to eventually win the property.

The auctioneer will clearly announce each bid and give the participants a chance to counteract with a higher bid.

This goes on until there is no more bidding activity, which signifies the completion of the auction.

    Benefits of selling at auction

    Selling a property through an auction has several potential benefits compared to the traditional approach.

    The following are a few key benefits that make auctions of properties a good option for homeowners to maximize their profits and make the sale process fast:

    Bidding War:

    The most significant opportunity for selling a property at auction is experiencing a competitive bidding war.

    The presence of multiple potential buyers, all clamoring to acquire a property, can help push the prices well above the starting point.

    This competitive nature of auctions creates a sense of urgency among interested parties and often leads to a higher sale price.

    Exposure to serious buyers:

    Auctions drive serious motivated buyers who are out to purchase a property.

    Buyers show up ready and committed, which reduces the chances of time-wasters and prospects who are non-serious about making a deal.

    This increases the likelihood of securing a successful sale by targeting this highly concentrated pool of prospective buyers.

    Determining the Real Market Value:

    The competitive bidding process running in an auction gives a clear opportunity to discover the real market value of a property.

    Through the activity of bidding on the property, the market determines the highest price that buyers will be willing to pay.

    It also reduces the guesswork when setting an asking price, a factor that has been challenging to come up with in the traditional way.

    Since auctions let the market drive up the price value of the property, this will result in a fair market price.

    Will Auction get a higher price

    This doesn’t guarantee in any way that seller will fetch a higher price. 

    A real estate auction is designed to be competitive, as interested potential buyers participate throughout the process to outbid one another and win a property.

    In many cases, the seller might have been better off listing it on the MLS.

    Attracting More Buyers:

    For property owners, many  buyers can be targeted via property auctions, including regular buyers, individual investors searching for opportunities, even companies like OpenDoor.

    This diversified pool of potential buyers with varying objectives contributes to increasing the selling price.

    And because the buyer has somewhat a clear idea before he or she comes to the auction, there is a higher chance that they will have the money in hand, enabling competitive bidding.

    This presence of truly motivated buyers could drive the sale price higher.

    Momentum of Auction Sales:

    An auction inherently has a prescribed timeframe and induces urgency among buyers.

    As the auction comes to a close, competitive bidding could get fiercer and buyers could be more willing to increase their price, thereby increasing the price.

    The last important bit, or the highest, often seen in an auction to be placed during the last few minutes, hence leading to higher sale prices of the property.

    Risks in auctioning a home

    While property auctions can be relatively beneficial for your property by getting a higher selling price and a quicker transaction, there is still some risk involved for the sellers.

    Remember, in traditional sales, potential sellers can specify an asking price.

    In the case of property auctions, the interested buyer can win a bid at a much lower sales price than the seller was expecting.

    Therefore, the final price is always uncertain as the final sale price will depend on the highest bidder.

    In any case, the property may draw no bids or fail to meet the reserve price set by the homeowner/seller.

    It indicates that the property is unsold at the end of the auction the auction.

    While this incident could be rare, it’s still a possibility at a seller should consider.

    Limited exposure to a specific pool of buyers 

    Property auctions tend to attract investors or buyers who are actively looking for a bargain or a quick investment opportunity. 

    As a result, the specific pool of potential buyers may bid low.

    Thus this limited exposure may affect interest and competition, which may affect the final sale price.

    Legal and Contractual responsibilities 

    Selling a property through the auction method entails some legal and contractual requirements bound all parties involved, including the seller.

    Therefore, as a seller, you have a greater deal of obligation to fulfill to make the sale through an auction process successful.

    How long does it take to sell a home

    Without necessarily having to use the methods of selling which are known, selling a house at an auction becomes a relatively fast process.

    The timeframe for settlement usually ranges from a few weeks to a couple of months, depending on the specific circumstances.

    Pre-Auction Preparation: Important things must be done before the auction.

    They include evaluation on the value of the property and setting a reserve price at which the minimum a seller is going to accept.

    Marketing and Promotion:To attract prospective buyers and create a competitive bidding environment, thorough marketing and promotion are necessary.

    The auction company will utilize various techniques, ranging from online site marketing, print media, social media campaigns, and direct targeting of potential buyers, real estate agents, and investors.

    Post-Auction Procedures:

    Once the auction concludes and a winning bidder emerges, the sale is subject to the contract’s terms.

    The buyer typically pays a deposit immediately or within a specified timeframe.

    They will then proceed with due diligence, including property inspections, considering legal issues, and completing necessary paperwork.

    If the buyer successfully completes the due diligence process and fulfills all contractual obligations, the sale moves towards settlement.

    This involves transferring ownership of the property, finalizing financial transactions, and ensuring all legal requirements are met.

    Who pays the auctioneer’s fee

    The auctioneer’s fee is typically paid by the seller of the house.

    Auctioneers typically charge a commission of 5-7% of the final sale price, plus any additional fees.

    This fee is usually a percentage of the final sale price and is agreed upon prior to the auction.

    Final Thoughts

    Choosing to auction your house can offer numerous benefits over traditional selling methods.

    Auctions attract more buyers, create a competitive environment that can drive up the value of your house, and help sell real estate quickly.

    With an auction, you have the advantage of knowing your exact sale date and setting a minimum pricing that ensures you get the price you want.

    However, it’s important to consider all options before making a decision. If you’re unsure whether to sell your property at auction or in a private sale, weigh the pros and cons of each approach.

    Ultimately, working with a real estate agent or selling “for sale by owner” may also have its advantages.