Dear Mr. Gisriel: I am interested in possibly selling a house by auction sale. How do I go about it? What are the pros and cons? What fees are imposed and what hidden costs may be involved?
Dear Mr. McCain: Selling a house by auction has become more popular in the past several years as the resale real estate market has slowed.
The main reason to sell a house by auction is to quickly convert your real estate asset into cash. Also, your costs are generally lower than when you sell through a real estate broker.
Instead of paying real estate commissions, your cost at auction can be limited to advertising costs (if the auctioneer charges a buyer's premium, passing the auctioneer fee to the buyer), or the advertising fee plus the auctioneer's fee (if the auctioneer is either unable to sell the property or does not charge a buyer's premium).
It's always a good idea to have a written agreement with the auctioneer that sets out what the advertising costs, auctioneer's fees and other expenses will be.
Properties are sold "as is," eliminating warranties.
The only issue left is price -- such things as preparation of information packages and inspection reports are done in advance.
If the highest bidder for your property is represented by a registered broker, you will pay a commission, which will be either a flat fee or percentage of sale price.
Although the real estate auction can be a win-win proposition for everyone, there are advantages to the seller. You have the opportunity to dispose of the property quickly, saving long-term costs such as interest, real estate taxes and insurance. The property is exposed to a large number of prequalified buyers at one time.
As a seller, you know exactly when the property will be sold, you set the terms and conditions of the sale, and you are relieved of the need for negotiations.
You will want to select the type of auction that best sits your needs.
(Absolute auction, in which the property is sold to the highest bidder regardless of price; minimum bid auction, where the auctioneer will accept bids at or above a disclosed set price; or an auction with reservation, where a minimum bid may or may not be posted and the seller reserves the right to accept or reject the highest bid.)