Selling homes using the auction format has great promise, mostly because when they are done right, they eliminate a lot of the fluff and uncertainty. Buyers just want to buy a good home for a decent price, and the wrong-pricing-and-wait-for-a-miracle listing program has run its course.
Auction.com is now listing homes for sale in San Diego County, and advertising their plan on television. They are trying to appeal to everyone by combining the old I-Pay-None format with Zetabid’s online auction.
A seller pays $25 to list their home, and is scheduled to be auctioned on-line about a month later – with a secret reserve price, under which the seller is not obligated to sell. In the meantime, they are entered onto the MLS in case any buyer wants to snap it up before the auction. (Like most FSBOs, the MLS prices look like they are full retail.) The on-line bidding is open for five days, and the opening bids are not published currently.
Details from their fine print:
Auction.com only charges the seller a 1% fee, but that’s just for advertising. If you want a “listing helper” to assist with open houses, inspections, and evaluations, then you pay another 1%.
They state clearly that “broker is not responsible for, nor assume any obligation for open houses, lockboxes, deposits, or advising seller on the merits of offers to purchase.”
The buyer pays an additional 5% commission, or ‘premium’. The buyer’s agents are paid 4%, and apparently Auction.com keeps the other 1%. So they’ll receive 2% for listing input, and it’s 3% total to them if you want a helper – or 7% total commission paid.
I would guess that most sellers would rather wait for the on-line auction, rather than sell it for an attractive price beforehand – the allure of a potential bidding war is too good to pass up. Buyers will like the convenience of an on-line auction, but won’t be giddy about tacking on a 5% premium unless their bid is already under-market. In the end, the seller’s reserve price is likely to kill most if not all “deals”.
REDC, the regular auction company and parent of auction.com, has luck selling bank-owned homes in a hotel ballroom because those sellers are willing to sell for whatever the market will bear. Normal individual sellers aren’t going to “give them away” which is what it would take for buyers to feel comfortable with this format.
If they could kill one of the two hurdles – either dump the reserve price or make the sellers pay the full commission, then we might have something to talk about.
I tend to agree that the organic seller probably has a little too much attachment to the house and would always worry about leaving something on the table in an auction format. Might work well with inherited real estate, especially for out of town children. It could also work pretty well for investor and bank owned property, but I think it’s a bit of a reach to assume the traditional owner occupied seller would go this route at least initially. My home is special doesn’t translate well into an auction setting.
this is fail miserably. the reserve price will be $1 under the mls list price…..same as ebay motors. you wont get a deal thru the auction……when the gov has bought all the mortgages from the banks and they own 30% of the housing inventory of the entire usa…then…we will see bargains at auction.
Did they really pay $2.5M for the Auction.com name?
http://www.domainnamenews.com/domain-aftermarket/rumor-auctioncom-sold-25-million/4370
another non-starter, next please…sellers only willing use the auction because they cling to the ‘bidding war’ line hoping for more money and have no intention of giving it away.
Doesn’t matter if its commercial or residential, all real estate comes down to finding the ‘motivated seller’. it always has, and always will regardless of the various middle-men selling it.
Seller’s motivation is 50x more improtant than supply/demand as our current, local market exhibits.
The auction format has been used for many years in Australia. I observed a few in the ’90s, and followed the reports in the Melbourne Age for a couple of years. The clearance rate in the auctions was variable, but often the property that didn’t attain the reserve price in the auction would sell a few days later for a negotiated price to one of the last two or three bidders.
If nothing else, the auction served as a price discovery tool.
Yetanothermike,
In the auto auction world what you described is called “and the bid goes on”. Auctioneers know who their shills are and they also know who the real buyers are. If a buyer is offering a reasonable number and the seller is not being reasonable with their minimum sometimes it just takes a little negotiation to make the deal go through. Emotional attachment is a weird thing some people just need to feel important.
A higher fee to list a property for auction might help clear off the sellers who aren’t interested in selling unless they meet their price. $25 is pocket change. A seller could put up their home 12 times a year for less than a dinner and bottle of wine at the best restaurant in town.
Something like $250 as a listing fee would make the sellers take the process a bit more seriously.
It seems like the reserve price is the seller’s insurance against not enough bidders. The auction format may work well if there is high demand from several buyers _and_ all those buyers know about and participate in the auction. As a seller, my fear would be that only one or two buyers find out about the auction, and thus the home sells for less than market.
Travis – the market fluxuates. What the market says anything is worth today might change tomorrow. Prices go up, prices go down. Just because the market for one home turns out to be XXXX this month is no guarantee that it will be the same next month. Either you are in 100% to sell at the best price you can get this week or you are in it to sit and wait.
Motivation is the key, as Jim keeps saying.