With the U.S. housing market continuing down the road to recovery, inventory remains tight as home sellers are waiting it out, hoping to regain some of their home equity lost during the downturn. One buying and selling option often overlooked by consumers is property auctions.
Because property auctions are not considered a traditional method of selling or buying, misperceptions and myths abound about the auction process. Here are several myths debunked.
I won’t get the price that I want
Truth: Home auctions allow interested buyers to compete with one another for the home they want. It’s this competition that brings out the true market value of a home. On auction sites, bids are placed in a transparent marketplace, so buyers can see offers and interest in real time. Additionally, sellers set a reserve price, which is the minimum amount of money they will accept for their home. Meanwhile, buyers benefit by seeing exactly how much money it will take to be the “highest bid” instead of wondering why their offer wasn’t accepted in a traditional process.
Auctions are complicated
Truth: While the auction process may be unfamiliar, it is actually geared toward transparency and simplicity. On most auction sites, pertinent property information, disclosures and auction terms are provided to buyers weeks before bidding starts. Open houses are held on many properties, and buyers are often able to complete a home inspection before bidding. Having a set auction date also reduces the uncertainty that buyers and sellers face with a traditional real estate transaction. Many auction sites are available to answer questions from home buyers and sellers.
Auctions don’t benefit agents
Truth: Auction companies often work with agents to generate more listings and sales. Agents can focus on building their network of prospective clients, listings and industry contacts while the auction site handles the property marketing and auction logistics. Agents conduct open houses, upload quality photographs and answer questions about the home and neighborhood. Listing agreements between sellers and agents and commissions stay intact during the auction process.
Auction fees are expensive
Truth: There are different types of fee structures for property auctions, depending on the auction house. In many cases, a fee equal to a small percentage of the winning bid is charged to the buyer. Some auction companies may charge the seller a nominal fee to market their home. On Auction.com, there is no cost to homeowners or agents to sell properties, and there is no cost to bid. There is a buyer’s premium (5 percent of the winning bid price), which is paid when the transaction closes.
Buyers have to pay cash
Truth: While paying in cash is certainly an option, many homes can be financed through a traditionalhome loan. Buyers are usually only required to put down a deposit, which then gives them between 30 and 45 days to close the loan and the deal.
Auctions are only for distressed properties
Truth: While auctions have been a beneficial way to buy and sell bank-owned homes, they are also commonly used for non-distressed properties, short sales, commercial properties and luxury homes. Any individual looking to buy or sell a home would be wise to explore their options when it comes to property auctions. Transparent and streamlined procedures, far-reaching marketing and the simplicity of online bidding make auction sites an additional choice for buying and selling.