Why Sell Real Estate By Auction?

Rons-Blog

I cannot tell you how many times I have been asked this question when talking with a seller, estate trustee or an attorney. I remember one seller saying to me, “If you advertise an auction for my home (land, farm, etc.), won’t most people think that this is a foreclosure or some distressed sale?” My response has been, “If I can sell your home at market price, do you really care what people think?” Believe it or not, there have been a few, not many though, that did care. Most of these were from high end homes in nice or gated communities.

When I am asked this question, I try to explain to the seller that perhaps many years ago, that was the impression people would get when they saw an auction ad or sign but that has changed over the years. The National Association of Realtors have had several articles in their publications stating that real estate auctions are on the rise and they are not just for foreclosed or distress properties. Some have projected that real estate auctions (houses and land) could reach as high as 40% of all new real estate sales.

Statistics support the fact that real estate sells must faster at an auction than through a traditional listing. Usually in 30 to 45 days after signing an agreement. Why is this? The answer lies in the marketing of the property.

When an agent list a property for sale, a contract is signed (probably for no less than six months), a sign goes up in the front yard and a listing is put into the local Multiple Listing Service (MLS) along with information on the firm’s website.

The agent’s Broker (the agent’ boss) may allocate a few dollars for advertising if the Broker feels it will help get the property sold quickly. However, this is not true for every listing. Remember, this money comes out of the Broker’s pocket.

When proposing an auction, the seller is given a detailed marketing plan showing how much money is needed for marketing and where the money will be spent. The auctioneer reserves the right to alter the marketing plan as needed. The seller pays the cost for marketing. Yes, you heard me right, the seller pays the cost for marketing.

I am usually then asked, “You mean to tell me the seller pays for marketing AND pays you a commission?” That is not what I said. I said the seller pays for marketing BUT the buyers pays our commission through a “buyer’s premium.”

If the buyer’s premium was 10% and the final high bid was $100,000, then the final contract price would be $110,000 (10% of $100,000 =$10,000). If the marketing fee was $3,000, then the cost to the seller would be 3%.

Still wondering if an auction is the best solution for you? Give us a call at 252-257-4822 and let’s talk about it. You’ll be glad you did.

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