Home auctions are making their way into the mainstream – if they becomes the standard, we won’t have to worry about portals, shenanigans, etc.
Category Archive: ‘Auctions’
This is another installment in my quest to change how homes are sold.
In Australia, 98% of the homes are sold by auction. The guy who was the main auctioneer for Harcourts sold over 6,000 homes there by auction, and has since come to America. They are offering an auction option as one of the ways they will sell your home.
They don’t insist on an auction, they will sell your home the traditional way too – it’s just one of the choices for sellers.
They do include an undisclosed reserve price to make sellers feel comfortable that they won’t have to ‘give it away’ at the auction. They then input the listing onto the MLS at the below-reserve opening bid, and do several open houses leading up to the auction about a month later.
I had a long talk with one of their agents yesterday about their results.
Since they started about a year ago, the local office has sold 49 properties with the auction format. Here are the results:
62% of the homes sold before the auction.
12% sold at the auction.
23% sold after the auction.
While I’m a big believer in the auction format, it appears that our local society has yet to embrace it as the most effective way to sell for top dollar. While we were talking, I told Kayla she should get her auctioneer’s license and just hope it happens in her lifetime.
The big takeaway is how well the “attractive-pricing” format works.
Because the properties are listed on the MLS at the opening-bid amount, they look like deals. But sellers have no intention of selling for that price – they have already designated a higher reserve price.
Yet nearly two-thirds of the time they are able to make an acceptable deal with a buyer at some price point above the opening bid.
Buyers don’t mind paying a little more if they see the value. They know that if they really want the house, they might as well step up now and make the deal while certainty is available.
Our MLS already allows the goofy ‘value-range pricing’, where two prices are listed and buyers are supposed to guess what to do. We probably don’t need to replace that format, but the MLS should offer a new option:
List your home at the opening-bid price.
Every seller should consider adopting this format as the best way to instill excitement and urgency in buyers, and give them reason to bid early and often to win the property. Making it a contest where buyers compete for the home is the best way to drive the price up – and in most cases, more effective than pricing above comps and hope you get lucky.
You don’t even need the actual auction – it isn’t working that well anyway. All you need is an agent who can conduct a proper bidding war once the interested buyers emerge.
The traditional method of pricing above the comps works great when prices are rising rapidly, because eventually the market will catch up with you. But the frenzy is over now, and buyers are being much more cautious. If you don’t sell early, the buyers are watching the days-on-market closely, and will hold them against you, price-wise.
If we never get to the actual auctions, or we just work our way towards them over time, then fine. But what sellers need is attractive pricing to stand out from the crowd, and get the buyers’ attention. Conduct some open houses so they can see other potential bidders eye-to-eye, and then offer the chance of buying now when they have an open shot.
I will take your listing using either format, and give you everything I got. I’m suggesting that as the market ‘matures’, and prices flatten out, buyers are going to be increasingly reluctant to consider homes listed at 5% to 10% above the comps.
Using the ‘attractive-pricing’ format will set you apart from the crowd, give you maximum exposure and an obvious format to cause a buyer to pay a price that is acceptable to you.
That’s what you want, isn’t it?
Here are some of the details about those RSF auctions you don’t find online:
Not mentioned here – a bidding war is the fairest way to select the buyer. Home sellers should read this carefully – this is not an April’s Fools joke!
I offer this service at a discounted rate, and have a long track record of selling homes for retail-plus prices using this technique. Contact me for more info:
Three hundred people came through the open house, 25 made offers, and the bidding war lasted eight rounds and four days. By the time it was over, in early March, the owners of the 2½-bedroom, one-bath condo in Brookline — on a busy street, but tastefully decorated and near the Longwood Medical Area — accepted an offer that was tens of thousands of dollars above the $570,000 asking price.
Eric Glassoff, the listing broker, a man with 13 years of experience, said he could have listed the property at a higher price, “but then we wouldn’t have made as much money.”
It’s a scenario being repeated around Greater Boston, as some real estate agents employ a tactic that seems counterintuitive in a sellers’ market. Rather than setting prices high to take advantage of a market where buyers have few options because of low inventory, some agents in communities with hot markets are going in the other direction — listing properties for less than they expect to get in order to trigger even more interest.
The goal is to attract a mob to the open house and set off a frenzy where emotion trumps the cold math of price-per-square foot.
“You can get a ‘Hunger Games’- style fight,” said Cambridge real estate agent Lauren Holleran.
Boston agent David Bates , the author of “Context 2015,” a forthcoming e-book that analyzes the culture of “over asking price,” said that once multiple offers come in, “people are not bidding to buy the property for value, they are bidding to win. Those are two totally separate things. If you are buying for value, you are negotiating. If you are bidding to win, you do whatever it takes to get that property.”
READ FULL ARTICLE:
We are shambling our way towards using an auction format to sell houses, but then again I was the idiot who thought we’d have video tours of every listing by now!
From the WaPo:
They find, in research published in the journal Real Estate Economics, that only around 3 to 4 percent of homes on the market across the country were selling in bidding wars for years prior to the bubble. Then at the bubble’s peak, nearly 30 percent of homes in metropolitan D.C. were selling this way, the highest share of any metro Han and Strange studied. The same was true of about 22 percent of home sales in Baltimore and Norfolk, 23 percent in Las Vegas and 26 percent in Los Angeles.
Since the housing collapse, these crazy numbers have declined, but not back to their earlier levels. As prices have fallen and the number of home sales has, too, bidding wars haven’t disappeared apace. That means that we’re probably seeing not just a lingering effect of the housing bubble, or even a pure product of high housing demand, but a new strategy for selling homes that was embraced during the bubble.
“The persistence of this suggests that people have decided that this is a good way to think about selling these kinds of goods,” Strange says, “selling housing in a more auction-like way.”
If a list price once meant the seller’s ceiling, for many homes it’s now the buyer’s floor — the number with which the auction can begin. Part of what’s going on here, Strange says, isn’t just that the small supply of homes for sale continues to push up their price in certain markets like D.C. (bidding wars still made up about 12 percent of sales here as of 2010). Real estate agents are also strategically listing homes below their value to create bidding wars.
“One way to see all of this is that housing is this incredibly important good, it’s easily the most important asset in a typical household’s portfolio. As a share of total wealth, housing is huge,” Strange says. “And yet, the way houses are getting marketed, very broadly speaking nowadays, is an awful lot like it was 50 years ago.”
If you’re a buyer or a seller, you sign a contract with a real-estate agent who understands what’s going on a lot better than you do. They negotiate on your behalf and split a commission, typically about 6 percent. The way information is traded — through home visits, negotiations and market comparisons — is more or less how it’s been done for decades. For most of this time, buyers would set an aspirational price, then negotiate down from there.
“With the rise of bidding wars, we shouldn’t think that the housing market — like other markets — is just going to keep doing things in the old traditional ways forever and ever,” Strange says. “There are going to be changes.”
“People are making these million-dollar trades,” Strange says of homebuyers. “But we really don’t know that much about the housing market, where it’s going, what demand and supply are. It’s an amateur market where people are making these huge, huge decisions.”
The highly anticipated, no-reserve auction in Rancho Santa Fe happens later today. It was on the market for $36,500,000 back in 2006 and for sale ever since – the latest list price was $22,500,000 last year.
This is the second no-reserve auction in Rancho Santa Fe by this company. The first was the gambler’s house, and it sold for $13,000,000 last month:
Any guesses on tonight’s final price?
You’ve heard me say that I think it is my job to conduct a proper bidding war between all buyers and push for top dollar – and I will give them ample opportunity to pay it! In this case, it was 10% over list price.
But the houses that need work are more prone to falling out of escrow once the scope of the project starts to sink in. It is part of the business, and you have to be able to bounce back quickly to maintain momentum.
Here’s the audio update on our progress in Solana Beach.
While I think listing-for-an-attractive-price-to-induce-a-bidding-war is the best strategy to sell houses, it only works if you can run an effective bidding war:
Reader 3rd Gen SD asked yesterday,
“You regularly mention pricing to engineer a bidding war. Do you have a post you could link to that describes your strategy, including how you manage same?”
There are no rules or regulations on how to handle a bidding war – each realtor is on their own to devise a strategy. As a result, most don’t do more than spreading out the offers on the seller’s table and picking one.
Back in the REO days, the banks would insist on countering each bidder for their highest-and-best offer, and that is the most common solution. But agents are reluctant to tell bidders how many offers there are, or at what price point – they just want you to bid blindly. In those cases, at least every bidder has a chance to win, but without some guidance they are likely to be conservative.
When my sellers get multiple offers, I’m working the phones myself. I am asking questions to qualify each buyer, and giving their agent some coaching on what it will take to win.
It’s the pitting of each buyer against each other that results in top dollar sales. They are much more likely to pay a higher price if they have a number to shoot at – AND they feel like they have been treated fairly.
Here are specific examples of how I do it:
Why doesn’t every agent handle multiple offers this way? Because they don’t have to – sellers still think they did well, price-wise, and they can tell their friends and family that their house was sold in a bidding war.
Thinking of selling? Hire Jim the Realtor!