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.