Home to sell or buy? Consider speed, ease of an auction
Buying or selling a house at auction can be a quick and easy alternative to traditional realty sales, but it’s not for everyone. Here’s a guide, compiled by the Angie's List Magazine staff, to help you decide if it’s right for you.
Selling a home
- Are you carrying two mortgages? Do you own a unique or trophy home that isn’t easily valued? Are you selling a house and personal property a deceased relative left behind? Is time more important than money? If you’ve answered yes to any of these questions, an auction might be the way to go. Experts say that the ideal seller is anyone who needs to sell their property quickly.
- Search for a reputable auction company in your area by reviewing Angie's List. Also, click on the Find an Auctioneer section of the National Auctioneers Association website. About 30 states and the District of Columbia require auctioneers to hold a license; it’s a good idea to look for a licensed professional if you can. You may also want an auctioneer who holds a real estate license, which allows him or her to take you through the closing.
- After meeting, your auctioneer will prepare an estimated valuation of your home along with estimates of advertising costs, which can run between 1 percent and 5 percent or more of the property’s value. Sellers often pay marketing costs out of pocket, but that can be negotiable. If the auctioneer's estimate for your home’s value falls below what you need to make, the auctioneer will likely bow out.
- You’ll sign a contract outlining costs and the date and terms of the auction. You’ll decide whether it will be an absolute auction, where the house sells to the highest bidder on the day of the auction regardless of price, or one with a reserve price where you review the highest bid before agreeing to sell. You’ll also want to know if you or the buyer will pay a premium for the auctioneer's commission.
- In the four to eight weeks after you sign the contract, your auctioneers should advertise to attract buyers, probably in the local papers and, possibly, on the Multiple Listing Service. They may hold two or three open houses; often these are the only times potential buyers can see the property.
- The auction is typically held a month or two after the contract is signed. You’ll be there, a silent participant as bidders duke it out. Unless you’ve chosen a reserve auction, the high bidder will immediately hand over a nonrefundable deposit and sign paperwork.
- About 30 days later, your sale will close. Auction sales have no contingencies.
Buying a home
- Experienced homeowners who can easily secure a loan, have at least a 10 percent deposit at the ready and like the idea of a quick close are the best candidates for buying a home at auction.
- If you fall into any of these categories, the next step is to get familiar with auction companies in your area. Again, check out Angie's List and auctioneers.org and put your name on mailing lists. Some companies advertise on the MLS, but not all, so a real estate agent might not be on top of all the opportunities in your region.
- Go for a trial run. Most auction companies are happy to let you sit in on an auction, giving you a chance to watch the process and understand how quickly it can happen — sometimes in less than 10 minutes.
- Once you’ve identified the property you’re interested in, find out everything you can about it before the auction. If an auction company doesn’t allow you to inspect the home prior to the auction, “Don’t walk, run away from that,” warns John Nicholls, an auctioneer in Fredericksburg, Va.
- Understand the contract terms — and review them with your lawyer — before the auction. Once the gavel falls, there’s no more negotiating, and the same terms apply to every bidder. Also, you’ll need to have your financing ready the day of the auction, so make sure your lender can deliver quickly. You should be prepared to hand over at least 10 percent of the purchase price if you’re the winning bidder.
- Keep in mind that although you might get a property at a lower price than through a traditional real estate transaction, you won’t necessarily get a bargain. You’ll also likely need to add at least 5 percent to 10 percent for a buyer's premium to your high bid. Settle on a maximum bid before the auction and stick to it. Be aware that an auction can create excitement and get your adrenaline flowing, so be wary of becoming overzealous.
- On the day of the auction, you’ll probably need to register to bid and possibly show proof that you have deposit funds. If you’re the high bidder and your bid is accepted, you’ll hand over your nonrefundable deposit and sign paperwork agreeing that you are buying the property as is and will close the deal within a set time frame, possibly 30 days.