While real estate auctions are most often associated with distressed properties up for bid on courthouse steps, some companies are trying to take advantage of today's market by pitching auctions as a viable alternative to traditional marketing methods. But are auctions worth the thousands of dollars sellers are required to pay upfront to the auctioneer regardless of whether their property actually sells? And do buyers necessarily get a good deal buying at auction?
Auction company owners and employees like to portray the auction process as effective at establishing a property's market value. But “true” market value is ultimately determined by exposure to the biggest, broadest market possible. And today, with widespread public access to MLS information and a seemingly infinite number of real estate websites allowing visitors to search for property online, reaching a broad market of potential buyers is easier than ever. Auctions certainly don’t expand the market any further.
A property seller would be much better off listing their property with a real estate agent at the minimum price they are willing to accept (think of it as the "reserve price" used at auctions) and stating that they will not be responding to any offers for x number of days to ensure that the property receives broad exposure. This is a common strategy with lender-owned properties and it sometimes results in multiple offers. And unlike the auction process, it costs the seller nothing!
Another quirk about auctioned properties is that they’re typically sold “as is.” A winning bidder is often required to put down a non-refundable deposit BEFORE having the property professionally inspected or even appraised! Of course, a bidder could elect to have a house inspected and/or appraised beforehand. But who in their right mind would be willing to shell out hundreds or even thousands of dollars to do so before having some type of assurance that they will have first dibs on the property? What about inspecting it afterward? While this is possible, keep in mind that the seller is not obligated to fix any defects discovered. A buyer’s only options then are to go forward with the sale or forfeit thousands of dollars of deposit money.
Furthermore, most auctions allow the seller to set an unpublished “reserve” price. If no bid meets or exceeds the reserve amount, the seller is not obligated to sell. Any bidder who has paid out money to have the property inspected and/or appraised is SOL. Does that seem like the best way to go about buying a house?
There is an auction scheduled to be held in Bend tonight. I'll write about the results soon, though I'm not expecting much.
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