A house auction is a sales process where buyers bid against each other to purchase a home, often used for difficult-to-market properties or to avoid lengthy traditional sales processes. Auctions for foreclosed properties have no reserve price, while private seller auctions may not yield higher profits. Homeowners choose auctions to save time, but must pay the auctioneer a fee regardless of whether the property sells.
A house auction, also known as a real estate auction, is a sales process in which prospective buyers bid against each other to purchase a home. The process is sometimes the result of foreclosure proceedings pending against the homeowner. It is also often the preferred method of selling a home that is considered difficult to market. A house auction is also commonly favored if the owner wants to avoid the generally lengthy process of hosting open houses and fielding bids.
When a homeowner decides to auction a home for sale, a meeting with a professional auctioneer is often the first step. The auction specialist and seller research similar homes in the area to determine a comparable market price (CMV). If there are no CMV homes nearby, both parties agree on a reserve price. The house is unsold if no offer is made at or above this reserve price.
This process differs from an auction for a foreclosed property where there is no reserve price. In this case, the highest bidder wins, regardless of the real value of the property. The downside buyers usually face is that the bank that has foreclosed on the property may repeatedly counteroffer until a price they deem acceptable is reached.
More adventurous property investors are commonly looking for foreclosed properties that are selling cheaply but with the caveat that the property sale is classified “as is”. This means that at the closing of the sale, the bank or lending institution is released from any liability relating to the condition of the property. This waiver includes pest infestation, property defects in plumbing or electrical areas, and imperfections in the construction or foundation of the home.
It is often perceived that a home auction from a private seller will yield a sale price substantially in excess of market value. Visions of eager buyers screaming higher and higher numbers are common, but in reality this only occurs in extremely lopsided housing markets where available-for-sale homes cannot meet the demand in the buyer’s market. Most sellers who choose to sell through an auction do not make more profit than through traditional channels.
Most homeowners who choose to sell their homes through a home auction say the choice was based on saving time, since an auction is a one-shot event. In the event that it fails the reserved bid and goes unsold, the seller is at a disadvantage, as the public will not outbid under any circumstances. Additionally, the seller must pay the auctioneer 8-9% of the reserve bid price, whether or not the property sells.
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