There are alternative ways to buy and sell a property aside from the traditional channels of searching real estate listings and working with real estate agents. You can also buy and sell a property at auction on your own or with your agent. This approach is an alternative to using solely the traditional brokerage model.
It is important to understand all the auction rules and perform your due diligence on any property you are interested in, prior to listing to sell or bidding to purchase.
There are several reasons a home may be put up for auction. Some auctions specialize in foreclosures and other in situations where there are tax defaults, and some property owners wish to facilitate a sale and to sell quickly. Auctions can be ideal for selling one of a kind incomparable property. Every market has a threshold above which homes are more difficult to monetize, and the typical tactics of price reductions and prolonged advertising and marketing exposure can be impractical. The auction process helps a seller accomplish their goals within a desired timeframe.
As a buyer, you have to qualify and register to get a bidding number and typically submit a refundable deposit of 5-10% of the property’s expected selling price to the auction house, the entity holding the auction. The starting price may be the balance owed on the mortgage or a lower amount designed to entice bidding interest. The auction may have a reserve price on a property which is the minimum that must be bid.
A well known and largest auction company for high end luxury residential properties is Concierge Auctions based in New York and Texas. It auctions properties to the highest bidder. This company auctions properties throughout the world. As mentioned on its web site, they work with the listing real estate agents who receive typically 5-6% sales commission and Concierge Auctions charges 12% to buyers. This company is also recognized for its annual Luxury Home Index report which evaluates average selling prices for homes and the time to takes to sell based on the number of days on the market.
In most cases, a property is marketed for about four weeks prior to the auction. The auction house works with the listing realtor in the local community in this process; the terms and conditions of sale, purchase contract and the other required property documents are provided to the buyer. The owner makes a decision whether to set a reserve price or not. Without a reserve price, the property will sell to the highest bidder on auction day and there is no minimum bid that must be exceeded to purchase the property. Should the owner set a reserve price, the property will sell at or above the pre-determined price threshold on auction day.
In terms of fees, sellers pay for the title search and title insurance if applicable, and broker commissions where the buyer pays a premium on the high bid amount and any applicable transfer fees. The seller can also set a ‘buy now’ price which is a price the seller has agreed to sell the property for, without contingency, prior to the auction. This price is inclusive of commissions and fees including the buyer’s premium.
Some Auction companies provide incentives to spur bidding activity such as providing a ‘Starting Bid Incentive’. For no reserve auctions, they may offer an incentive such as 6% to bids received before the start of the auction. In other words, if you start the bidding, you would save money if you are the successful purchaser.
Auctions can be in person or online; the online format allows buyers to participate digitally from anywhere.
“It was a straightforward process and facilitated the sale that might have taken a year via the tradition process. I was provided stats along the way about the bidding interest.” – Property Owner
“I felt I bought a home below market value. I knew I wanted the home so I was engaged in the process so not to miss the close.” – Property Purchaser