Are you planning to sell your house? Well, there are several ways to do it. Alternatives to sell a property are growing and it is getting harder to decide the best course of action.
But, in America selling a property through an auction is very popular. The reason for choosing auction is to sell the property faster. The auction deals are usually profitable compared to conventionally selling the property.
There are online auctions too. In recent years, online real estate auction sales have increased by approximately 25%. Nicole Messier, vice president of marketing at Altisource, a real estate company that handles auctions, said:
“We are increasingly seeing users looking at auctions as they would look at any other type of traditional real estate listing,”
Although auctioning property is getting very common, but there are downsides too. This article aims to discuss the “Dos and Don’ts” of auctioning a property. So let’s begin:
Is auctioning your property a good Idea?
To most people, the answer is “Yes.” It is a hassle-free and fast alternative to sell your property by yourself. The auction happens when qualified buyers submit competing bids on-site or online. The highest bidder buys the property. In America, thousands of properties sold via auction every month. Let’s look at how the auction process works.
How does a property auction process work?
Property auction generally planned months in advance. Auction houses publically release a list of properties, known as lots. Potential bidders collect the information from auction houses about the properties. Some auction houses publish the list of properties a month before the auction date. But some publish it a week or two before. Every property has a ‘Guide Price,’ which a seller or owner of the property thinks could be the worth.
There’s one more price called ‘Reserve Price’ associated with the property. It is the minimum price that a seller or the owner of the property will accept. A reserve price is usually kept confidential. Both the guide price and the reserve price can change until the day of the auction. Auction is not for faint-hearted people. It is possible that you caught up in the moment and bid way higher then you intended. You can always ask someone to go with you and bid on your behalf.
How to sell a house at Auction – The Dos and the Don’ts
If you want to sell your property quickly, you should go for Auction. Here’re the steps you will need take to auction your property. And, also, the steps that you shouldn’t take.
Step # 1: Find the Right Auction House
The first thing you need to do is deciding the auction house. You need to do complete research on which auction house you will pick to represent your property. Decide whether you want to go with the local or a national auction house. If you are selling a property likely to appeal to buy-to-let investors, then choosing the national auction house is better. A national auction house will offer more exposure to a wide range of investors.
The best way to start looking for the auction house is your phone book. You can check out the National Auctioneers Association website. You will find the details of auctioneers in your area. Two things you should consider while finalizing your auction house are:
- The number of years they have spent conducting the auctions
- The trust they have built in the market
You can get an idea by attending one of the auctions organized by them. You can witness how they run things and how the auction process works.
Step # 2: Check the Auction House Fees
Knowing the charges, you will pay to the auction house is very important. Usually, auction houses charge a fee to list your property in their catalog. The entry fee to list your property can range from a few hundred to a few thousand bucks. The auction houses will charge you a commission on your property to cover the cost of documentation and auction. The commission usually starts from 2.5% + VAT up to 10%+ VAT. This commission is higher than an average estate agent fee. But, if your property value is low, you may have to pay a flat fee to the auction house instead of the commission.
Checking the auction house fee in advance is important as it will impact your profits.
Step # 3: Ensure the details on the catalog are correct
Once you pay the entry fees, you will need to provide your property details to the auction house so they can add in the catalog. Ask to check the details before it goes to print. Make sure all the details are correct. Any errors can scupper the sale.
Step # 4: Decide the type of Auction you want to run
There are two types of auction:
- Absolute Auction – In this type of auction, there is no minimum limit to sell your house. In Absolute Auction, there is no reserve price, and the property goes to the highest bidder.
- Reserve Auction – In this type of auction, there is a minimum limit for which the house needs to be sold. The owner or seller will decide a hidden minimum price to sell the property. If the bidding does not reach that minimum price, the property will not be sold.
Absolute Auction sounds better than the Reserve Auction. Just imagine that if bidders are not willing to pay as much as the hidden minimum limit, your property will never be sold. Plus, absolute auction attracts more bidders to get the best deal. You need to think really carefully at this point and decide what you want more. If you want to sell the property as soon as possible, then the absolute auction is better. But if you want to sell your property on your demanded price, then you can go with reserve auction.
Step # 5: Attend the Auction
Having you at the auction is important. So, mark the auction date at the calendar and attend it personally. If you wouldn’t attend the auction due to any reason, the auction will help as scheduled. The auction house will inform you via call shortly after the property is sold.
You will get paid with the money of the sale minus the commission and auction fee. It usually takes place one to two weeks after the auction date.
Now, let’s discuss the steps you shouldn’t take while auctioning your property.
Don’ts # 1: False information regarding the property
Don’t add false information regarding your property. Mention the problems correctly in the listing so that buyers won’t come out to you after the auction. If you fail to list the faults of your property, the buyer has the right to cancel the deal after the auction.
Don’ts # 2: Wrong Auction House with Wrong Auction Type
Don’t hurry to choose the auction house and type of action. Take your time; give it lots of thought. Select the right auction house with the right auction type.
Don’ts # 3: Unrealistic Price
If you are going for a reverse auction, don’t set the minimum price so high that no bidder will bid near to it. You will need to be realistic about the price of your property. You may have an emotional attachment with the property, but the bidder might not have any. So, instead of sitting on bleeding money and paying for the property maintenance from your pocket, it’s better to sell it at a realistic price.
If you are reading this article, it means you are planning to auction your house. So, let’s make it easier for you to decide whether to go for an auction or traditional selling method by listing some of the pros and cons of auctioning. Shall we begin?
Pros and Cons of Auctioning
- Once the bid is final, seller will get 10% of the deposit on the same day and the remaining amount within 28 days. So, if you want to sell your property quickly, auctioning has an advantage for you.
- Auction is a great way to sell properties in dire need of maintenance and renovation. Investors like it because they can renovate it and earn double profit by selling at a higher rate.
- Auction is also a great way to sell legally complicated properties as you will save yourself from going into complicated legal procedures.
- Sometimes auction houses failed to market your property as good as a real estate agent can do. The exposure to the right client can be hindered in an auction.
- Once the bid is final on your property, you will need to pack your bags and move out. In case if you are currently residing in the same property and have no other place to live, then give auction some time.
- The commission can go up to 10%, which is way higher than what a real estate agent will charge from you. So, if you can give your property sale sometime, better go with an estate agent.
On a concluding note, an auction is a great way to help people in dire need to sell their property, especially elderly ones. If you are auctioning your property, you are saving yourself from lots of hassle of paperwork, property inspections, and court dates.
We hope you have found this article helpful to answer all your questions related to the auction. If you have any other questions or queries, contact us through the comment section below.