I’d say to sellers: Auctions aren’t just for distressed properties. They are for desirable goods, like diamonds, art, antiques, and your home. Let me explain. Contrary to popular belief, auctions work. During downturns, they work really well. Take a look around your town: Are your neighbors losing time and value by “fishing” for the right price, then lowering it, month after month?
Auctions make all this go away. Most of all, they’ll make you go away, to your next home, too!
Now back to us:
A year and a half ago, I visited two countries that use auctions to sell homes regularly. In Australia and New Zealand, the auction is a normal, ordinary way to sell homes in about 30 days. You read that right: sold in about a month.
The process is simple: Sellers decide to move. They hire a broker who sells them marketing and transactional services (marketing fees paid up front, actually, but that’s another story). After showing and marketing the home for about a month, they invite all interested parties to a room with a professional auctioneer. One of them buys the house that very day.
Any home that sells at auction is sold for the actual market price. Sometimes, the excitement causes buyers to offer even more. But it’s not sold for less, unless the seller agrees to it. Seller set a reserve price; if nobody bids at or above the reserve price, they keep the home. They can try something else later. Unlike a distressed property sale, normal auctions involve a seller’s choice.
So: Thirty days on market. Sold at or above market price. Sellers get on with their life. Agents get paid fast. Sounds too good to be true?
Most people like auctions. They are exciting, fancy, prestigious. James Bond films feature auctions. We love car auctions on television. Antiques Roadshow is a hit on both sides of the Pond. We auction art, jewelry, horses, movie props and fine goods. Who hasn’t dreamed of someday bidding at a Sotheby’s or Christie’s auction? We love Ebay.
Auctions are serious events, where serious people pay serious money for seriously desirable goods. So why not real estate?
But aren’t auctions just for distressed homes? Don’t the buyers expect to get a “deal” or a discount? Truth is, buyers always expect to get a deal. Don’t you? Sellers expect a deal, too, when they buy their next home. Even buyers who pay full price of a “lowered asking price” are getting a deal.
Trouble is, we still let too many sellers go on fishing trips. Why not? If someone came along and told you they’d spend all their time, and put their people to work at no up-front cost, to try to sell your home, wouldn’t you take advantage of it? Sure, you’d intellectually know there is a risk of your home becoming stale on the market; but you’d take that risk, when it’s free. Thus, the kabuki dance between real estate agents and sellers. Today that dance involves a slow, painful process of lowering the price, month after month, until somebody breaks down: Often, it’s the seller’s nerves. Frequently, it’s the broker’s budget. Too many times, it’s the listing contract that expires, without home sold or agents paid.
Is this healthy for anybody? Must selling real estate be stressful for customers, fearful for agents, and destructive to both parties’ wealth? There has to be another way.
There is: Auctions.
Auctions short-cut the process. They can sell a home today, at current market prices. They get the job done; Everybody goes on with their lives.
But would American homeowners go for it? Common wisdom today says “smart money” has been buying homes during the recession. Read: affluent consumers. Smart money comes off the sidelines in a recession because that’s when the best values are found (even wealthy people want a deal!). Wealth is created and preserved during recessions. And smart, wealthy buyers are also sellers.
In fact, wealthier Americans are using auctions to sell their homes today. They want to move on, protect or re-invest their wealth into different assets (such as real estate rather than the dollar or stock market). A Bloomberg article recently noted how rich Americans were turning to auctions “after price cuts failed” to sell their home. Some sellers noted they didn’t want their home to get “stale” on the market, or wait years to move on with their lives. Even more interesting from the article:
- One auction company noted it generates an average of 276 inquiries per listing and 16 bidders at the auction.
- The dollar amount of homes sold at auction has risen 30% over the last year; and opening bids have increased over 100%
So, are you getting 276 inquiries on your listings and 16 visitors at your open house making offers?
Some people worry that sellers might “get less” if they use an auction. Actually, auctioneers will only sell the home for the price the seller agrees to. No different than the classic “asking-price/offer/negotiation” technique. It’s just all sped up, with a dose of excitement and competition.
Still not convinced? Consider these additional seven reasons why auctioning homes is the best way to get the job done:
- If the economy continues to weaken, jobs, credit availability and consumer sentiment will further decline. Home prices won’t rise over that period.
- Sellers, agents and buyers can get to the the right price right away. When a bunch of interested buyers tell you what they will pay for the home right now, that’s the market price. It’s up to the seller to believe it or not.
- Auctions can be non-contingent. Whomever bids highest has bought it. They pay a deposit (say, 10%) that day, with the balance due during a closing period. Everyone shows up prepared (and prequalified) to buy the house; no financing surprises.
- Sellers would only pay for their agent’s services. There’s no need to compensate any other agent, of the seller agent’s commission. In turn, that could lower costs for sellers. Cost savings attract consumers, especially in down markets.
- Agents would get paid more often. Imagine a real estate career with real cash flow. No more running up the credit cards in between sales.
- Paying up-front for an auctioneer, marketing or both, would be a healthy industry change. It would focus sellers on being realistic because there’d be a penalty for going fishing. When everyone is invested in the outcome, there’s an incentive to get the job done.
- Consider the psychological factor. Sellers can get on with their lives; Agents build reasonable careers. The old style “lower it until we hit gold” method isn’t healthy for sellers, agents or the economy.