"Auctioning" a house as a marketing strategy? Pros/cons...?

Asked by Sonia, San Jose, CA Wed Oct 31, 2012

Hi, we have been interviewing realtors to sell our house. One of the realtors told us about a new marketing strategy called auctioning. I have to say, it sounded a little shady to me. Can anyone tell me what this is, (pros/cons) and if it actually a legitimate marketing strategy? Thanks!

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Juliana Lee, Agent, Palo Alto, CA
Wed Oct 31, 2012
It can be a good deal for the listing agent. He knows that the home will sell within a fixed period of time or he will be able to say that the market doesn't support the price the owner wants. It limits the amount of time he has to put into selling the home. An auction let's him promote the home and himself. He can use a cookie cutter marketing plan. He'll be able to move on to the next home he has listed.

I think most home owners will be better served by listing their home and selling it in the traditional way. The first potential buyers that visit a home are often the most ready to buy. Auctioning a home isn't a completely bad idea but if the first visitors have unanswered questions or see problems, the listing agent can respond in an effective way. An auction wouldn't allow a response unless it is an auction in name only.

Homes are unique. It takes time for the buyer who most wants that home to find it and be certain it is what he/she wants. If there are unanswered questions the buyer will offer less money. Homes are not a commodity sold to whoever will offer the most money at the time of the auction. Homes are not collectible art which can be offered to the most potential buyers through an auction. Serious buyers will visit the home, probably more than once. You want your listing agent to satisfy every doubt a potential buyer has.

Some 30% of home owners will walk away from their mortgage obligations if their home is underwater. How many buyers at an auction do you think would close escrow if they doubt it is a great buy? The best sale by far is a win for the buyer and a win for the seller ... win-win.

Juliana Lee, MBA LLB
cell: 650-857-1000
Keller Williams Realty

Top 3 agent nationwide at Keller Williams
Over 1,000 homes sold in the bay area
Over 20 years experience
Web Reference:  http://julianalee.com
2 votes
Terri Vellios, Agent, Campbell, CA
Wed Oct 31, 2012
Is that where he listing it for 50% of market value, holds one open house and ask each person to submit a bid at the open house? If that is the case you are missing out on potentially great buyers. Not all buyers have the opportunity to see a house on one specific day. I recommend that seller allow at least 7 full days of marketing in order for all buyers to have the opportunity. Also the agents that do that have creating a reputation among other agents and buyers because of listing so low.

If it is a traditional auction, that usually has either a minimum bid set. The winning bidder also is responsible for paying an auction premium. Not all buyers are qualified with an additional 10% over and above their down and closing. This too will limit the buyer looking at the property.

What both of these do is bring cash buyers and buyers who have more money down. And those buyers are much more tight with how much they pay for a property. You will get it sold quickly.

As for pricing just below market, that is not a bad marketing strategy.
Web Reference:  http://www.terrivellios.com
2 votes
Annette Law…, Agent, Palm Harbor, FL
Mon Nov 5, 2012
There are many EXCELLENT marketing strategies available.
Which is best for you depends on your goal and the end game of the one doing the marketing.

An example or two of the need to know the end game:
A mortgage broker promotes 'Rebates' to buyers to offset closing costs. The buyer is unaware the 'rebate' is from the real estate agents compensation which requires a reduction in the services delivered in order for the agent to stay in business. The services not delivered is ignored. The brokers end game is in the knowledge even if the buyer changes agents they will not change the lender. The broker/lender has NO SKIN IN THE GAME! The buyer and the agent become victims.

Example 2
In the early years of short sales I worked with an attorney. Never closed a single short sale. Then standing in the lobby of the Curlew Road, Perkins, my attorney is chatting with a few investors. "Real estate agents are chumps," he states, "I take their short sale and force the owner into bankruptcy. I collect $2,500 up front for the short sale effort, and $2,500 to $6,000 for the bankruptcy. I have no concern if the home sell and prefer it does not for the benefit of this investor group"

Not knowing the attorney's end game from the very beginning cost many folks dearly. The short sale company I work with now charges NO upfront fees. They have 'skin in the game' and I've closed 3 short sales in Oct 2012.

This compels you to clearly understand your goals. If it is simply to unload the property with minimal inconvenience, auctions may be the best game in town. Nobody has any skin in the game and it may be entirely up the the bank what the outcome will be.

However, if your home has equity, you may be the ONLY ONE with skin in the game. This is not to your advantage. If no one else has invested their money and resources in the outcome, proceed with great caution.

The traditional home sale process requires your real estate professional to invest heavily in both resources and money to achieve the outcome most beneficial to you. Your agent is heavily invested with out a promise of benefit to them. Who do you think would deliver the outcome most beneficial to you, the one with 'no skin in the game' or the professional whose success depends on YOUR SUCCESS?
1 vote
The Medford…, Agent, Fremont, CA
Mon Nov 5, 2012
Realtors who work hard to get the maximum price and best terms for their clients by and large resent the auction process. Here’s why:

1. It does not provide due diligence to ensure that the seller gets the absolute best price and terms. It’s a proven fact that proper preparation and staging will reap significant dividends when selling.

2. It is an easy way out for the listing agent – all that is typically required is to put a ridiculously low price on MLS, then hold a 3-hour event where either an actual auctioneer is present to auction the home or, more typically, the listing agent collects written “bids” on a special, proprietary form and then, later that evening, works the phones trying to get the top few bids to bid against each other and raise the price.

3. By and large, the people who show up at these events are looking for a bargain. They are not there because they are willing to pay market price – they smell blood in the water.

4. Since the home is typically not available to view before the auction Open House, it provides a very small window of time for a buyer to actually view the home. Many buyers cannot make it for the “event” and the one that loses is … the seller.

5. It sets up a higher probability for dual agency. Many buyers show up at these events and, if their agent cannot make it, ask the listing agent to represent them, thinking they’ll have a better chance to actually get the home. In reality, only one person will actually win the bid, and then the listing agent is free to market to all those who wanted to be represented by them. It’s a VERY tacky practice.

Bottom line, you’ll be far better served by a traditional agent who will work with you to properly prepare your home, provide staging as required and then full, comprehensive marketing to showcase your home AND ample access to ensure that buyers can get in as often as they want to so as to ensure the house is right for them.

Here is a post that may be helpful:

Top 5 Questions To Ask A Listing Agent (And 5 Classic Questions That Are Meaningless)
1 vote
John Souerbry, Agent, Fairfield, CA
Wed Oct 31, 2012
Selling by auction is legitimate, but you don't need just a broker involved, you absolutely must also have an attorney.
The obvious goal of auctioning a property is to "uncap" the perceived market value that is set by a fixed listing price. Whether you conduct the auction online, by silent auction, or live on-site, your goal is to pit buyers against each other to push up the price. This can be a great strategy if the property is in a good location, in good condition, and - most importantly - if there are enough buyers looking for a property of this type in your target price range at this time. In short, there has to be strong demand for your property to create the competitive environment that makes an auction viable.
Before considering an auction, do a good study of the market to make sure when you put the property on the market buyers will respond. Nothing worse than the awful silence of no offers hitting your desk.
Also make sure your auction is conducted in a way that protects you legally. Proper disclosures are needed so that buyers understand the bidding process, offer selection criteria, and what will happen if an acceptable offer is not received.
These are just a few considerations.
1 vote
Tina Lam, Agent, San Jose, CA
Fri Nov 2, 2012
Auctioning is definitely a legitimate marketing strategy. Banks do that for their owned properties and trustees do that on foreclosed properties at the courthouse. Of course, the reason they're doing that is to increase the probability of a sale rather than the price. If that's what you want, then you should give it a try. One agent in San Jose (G.M.) does a lot of these, but only with short sale sellers who don't care that much about the final price.

If price matters more to you, then the traditional marketing approach is better. Price discovery takes time and being on the MLS gives you that time. If you happen to be in a super hot market with an extremely desirable property, you may be able to get virtually the same price from an auction as from a traditional sale. But, anything less hot than that and your price delta widens.
Web Reference:  http://www.archershomes.com
0 votes
Cindy Davis, Agent, San Diego, CA
Wed Oct 31, 2012
Auctioning is not new and is in effect, how many homes are getting sold. The pros are that your homes DOES get sold. The CON is that you might not get a price you are happy with.

Most properly priced homes in California are selling relatively easily right now. If you home looks presentable, and your are willing to price it right for the market, I would suggest NOT auctioning it right now. Auctions are often a last resort when a home can't be sold any other way.

Best of luck.
0 votes
Ron Thomas, Agent, Fresno, CA
Wed Oct 31, 2012
How many Auctions, (of any kind) have you been to?
What is the typical BUYER like at an Auction?
Need I say more?
0 votes
Elena Talis, Broker, Palo Alto, CA
Wed Oct 31, 2012
At the last CAR conference there was a company that runs on line blind auctions for homes. I am not sure if it would be something I would comfortably offer to my clients. The idea is that the site would collect bids for a set period of time and the owner would review the bids and pick a winner. The down side of the system was that competition was mostly on the price. All other aspects of the offers like contingency periods, loan to down payment ratio, etc. are not entered into the system and have to be reviewed by hand.

In reality, with the current shortage of inventory in Bay Area any listing can generate a live auction. You have to prepare the property and price it right.

Good luck with your sale!
Web Reference:  http://talisrealestate.com
0 votes
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