SBNOW logo small
ActiveRain Real Estate

Auction Services (for homeowners)

Posted on April 24th, 2006 at 5:27 pm by Sweth

Ethical Homes is proud to announce the addition of a new service for homeowners: Market Price Real Estate Auctions, where owners can get their home sold quickly and with no contingencies, all while taking advantage of the auction environment to generate the type of bidding wars that normally characterize a strong seller’s market.

Unlike so-called “courthouse steps” foreclosure auctions, where the goal is simply to get the property sold as quickly as possible, regardless of price, Market Price Auctions—more akin to those held by Sotheby’s and Christie’s, and sometimes referred to as “alternative sales”—are ideal for obtaining a fair market price for homeowners in a wide range of situations. Specifically, Market Price Auctions work very well in the following situations:

  1. Whenever there is confusion or dispute over the Fair Market Value of the property, including:
    • In rapidly changing markets, such as ones coming out of a sharp rise or decline in prices.
    • With unusual or extraordinary properties, such as ones with features not normally seen in that region.
    • For potentially emotional sales with multiple sellers, such as estate sales and divorce sales.
  2. Whenever the primary concern of the seller is that the selling process be as quick and hassle-free as possible, including:
    • Sellers who are relocating or retiring
    • Sellers who don’t want to have to deal with negotiations or contingencies
    • Sellers who want an as-is sale and don’t want to make any repairs prior to marketing
    • Sellers who need to have a fast sale and closing
  3. Whenever the property might be difficult to sell for reasons that can’t be easily corrected, including:
    • Properties where buyers will not be able to easily access the property at all times
    • Properties with “external deficiencies”, such as run-down neighboring properties, nearby industrial areas, or the like
    • Infamous or stigmatized properties (e.g. “the haunted old Johnson house”)

Answers to many frequently asked questions from homeowners about auctions are listed below. If you are a homeowner interested in Market Price Auctions, contact us and our Certified Auction Specialist would be glad to answer any other questions that you might have.

Frequently Asked Questions about Market Price Auctions

What are the advantages of using the Market Price Auction process to sell a property?

There are 5 major advantages for sellers who use the Market Price Auction process:

  • You maximize the return on your asset. Bidders actively compete against each other for the right to own your property. The auction event creates a sense of urgency that no other method of sale creates.
  • You reduce your carrying costs. Every day that you hold a property increases your expenses and liabilities associated with the property. Auctions in the DC area are held every 6 weeks, which puts an upper limit on the time a property will remain on the market, and the Market Price Auction process often results in a sale well before the next auction is held.
  • You avoid contingencies. All properties sold through the Market Price Auction process are sold as non-contingent and in as-is condition.
  • You guarantee a quick settlement. All properties sold through the Market Price Auction process settle within 30 days after the auction, with the buyer paying all closing costs allowable under state law.
  • You capture your market. Rather than waiting for buyers to come to you, the Market Price Auction process lets you bring them in at a specific date and time.

Can I attend an auction before I commit to selling my home through this method?

We encourage attendance and would be pleased to give you a live example of the process. Auctions in the DC area usually occur about once every 6 weeks; if you would like to attend one, please contact us and we’d be glad to let you know when and where the next one is. Please remember, though, that each and every auction is different, so you can’t necessarily assume that your auction will be exactly like any particular one that you attend.

I am not in financial trouble, and am afraid of what people will think if I should sell my home at auction. Can you give any insight on this?

You are not alone in your concerns. Many people are afraid of the perception of the auction. However, we must stress that there is a great difference in the marketing and the public image of a “by-choice” auction such as those that the Market Price Auction uses as compared with a “distress” auction. Where distress auctions are usually conducted quietly on the courthouse steps, by-choice auctions are events designed to generate widespread and interest resulting in competitive bidding; the atmosphere surrounding by-choice auctions is thus more like those at traditional auction houses such as Christie’s.

I am concerned about my net profit when using an auction, because I have to cover my mortgage. Do you have any advice that you can offer?

We understand your concerns and your need to cover an existing mortgage on your property. The key thing to remember is that the Market Price Auction process is designed to accelerate the sale of your property by determining empirically what the market is willing to bear—on auction day you will see what fair market value is for your property, and the fact that you are using an auction does not change that market value. If the market speaks at a level below your existing mortgage, then that is the price that you would need to be willing to work with regardless of the method of sale that you chose.

My agent doesn’t seem to know much about by-choice auctions. Will this impact my results?

Most real estate agents don’t have much direct experience with auctions of any sort, but that is usually not an obstacle to getting your home sold using the Market Price Auction process. Our Certified Auction Specialists and auction partners will work with both you and your agent to educate them in the process; meanwhile, our team of auction professionals will handle the details of the auction itself, allowing your agent to focus on handling the pre-auction marketing, which is very similar to the regular sales marketing that they are used to.

I am priced below market already. What is this going to mean if I sell at auction?

Fair market value is determined by what someone is willing to pay for your property. For properties that have not yet sold, whether or not they are priced below market is a guess based upon recent history; however, there is no guarantee that the market for your home today is the one in which another property in your neighborhood sold last month or even last week. The Market Value Auction process is specifically designed to determine true fair market value for a property, and get it sold at that price.

What types of properties do you sell at auction?

Our auction partners sell everything from inner-city investment properties to high-end trophy properties, and have been very successful with all categories of properties.

How often do you hold auctions?

Our preferred auction partner is planning seven (7) major auctions in the DC area in 2006, with one occurring approximately every 6-7 weeks. Contact us to find out what the registration deadline is for entering your property in the next local auction.

Where will the auction be held?

We hold all auctions on-site at the individual properties being sold. Studies have shown that “ballroom” auctions held offsite tend to result in lower final sales prices; by being on site, we can remind buyers of the positives associated with each individual property, resulting in more emotionally-driven bidding that usually encourages higher bids.

What types of auction are there, and what is the best one?

There are three major classes of auction: “absolute” auctions, where the property will be sold to the highest bidder at their highest bid price; “minimum-bid” auctions, where the property will be sold to the highest bidder whose bid is more than a pre-announced minimum value; and “reserve” auctions, where the property will be sold to the highest bidder whose bid is more than a minimum value that is not disclosed to buyers until after the auction. In general, the most effective auctions are absolute auctions, but for many sellers, minimum-bid auctions are a reasonable alternative; as part of our initial discussions with you about the auction process, we can go over the pros and cons of the various types of auctions in more detail so that you can decide which method will best suit your situation.

If I put my property up for auction, do I have the right to refuse the high bid and not sell the property?

In minimum-bid and reserve auctions, the seller has the right to refuse any offers below the minimum bid or reserve price. However, the highest bid solicited during the Market Price Auction process is usually a good reflection of fair market value; if you do refuse the high bid at auction, you should be prepared to wait for the market to change (which in the DC area historically happens on an approximately 7-8 year cycle) in order to obtain a higher price.

Who pays the auctioneer’s fee and any agent commissions?

The auctioneer is paid via a “buyer’s premium” that is added to the final bid, and the buyer’s and seller’s agents are paid by the auctioneer from that premium. Offers received on properties in the Market Price Auction process before the official day of auction occasionally do not include this buyer’s premium (usually because the agent for the buyer is unfamiliar with how pre-auction sales are handled). In those cases, the seller will be responsible for that buyer’s premium, and needs to subtract that amount from the amount of the offer when deciding whether or not to accept such pre-auction offers; rest assured, though, that those situations are rare, that we will help you to do the math to understand how your net profits will be affected, and that the seller never pays the buyer’s premium for any property that sells on the official day of auction itself.

Will we still have to consider contingent contracts?

All properties sold on the official auction day itself are sold as-is, with no contingencies and a 30-day projected settlement, and the buyer pays all legally allowable closing costs associated with the sale. There are times when pre-auction offers are made with contingencies for home inspection or financing; as long as those contingencies are lifted prior to the official auction date, these offers are acceptable, since they still preserve the effectiveness of the official auction if the contingent pre-auction contract does fall through.

Does “as-is” mean that we don’t have to worry about lead paint issues?

Although Market Value Auction sales are “as-is”, all state and federal laws must still be followed, including (for example) federal lead paint disclosure requirements, and Virginia condo doc review and approval requirements. For buyers who wish to have lead-based paint inspections, we provide a 10-day inspection window during the pre-auction period, so that their bids on auction day itself can be non-contingent.

Does the auctioneer inspect the property to determine the minimum bid for auction?

The auctioneer does not need to preview the property in order to propose an auction program or to establish a minimum bid for auction. Instead the auctioneer works in combination with the listing agent for the property and/or a local Certified Auction Specialist to advise the auction team regarding local market conditions and competing properties in the area; based on that information and recent auction history, the auctioneer will work with the seller to determine an aggressive minimum bid that should generate high levels of interest in the property.

Posted in Sellers