Selling a Home at Auction: Pros, Cons, and How to Get Started

What are the steps to selling a home at auction?

Step 1: Find an auctioneer

As your representative, the auctioneer is the one who will actually sell your property at auction. For best results, you’ll want to find an auctioneer who specializes in your type of property. If you’re in good standing with your mortgage, you won’t want to seek out an auctioneer who works solely with foreclosures. And if you own a smaller home or condo, you likely don’t want one whose expertise lies in selling multimillion-dollar estates.

If you’re working with a real estate agent, he or she can help you locate an auctioneer. Alternatively, you can search for one on the National Auctioneers Association website. Some of the other popular home auction sites include Auction.com, Hubzu, ServiceLink Auction, and Williams & Williams.

Step 2: Find out how the auctioneer earns their money

There are a few different ways auctioneers are compensated for their sales. In some cases, the auctioneer will get up to 15% of the sale price. However, others may charge the buyer a percentage, called an auction premium, which is typically around 10%-15%. In other cases, the auctioneer may opt to split their earnings across both the buyer and the seller. Make sure you and the auctioneer agree on the fees and payment terms before entering into an agreement.

Step 3: Choose which type of auction you want

According to the NAR, there are three main types of home auctions:

• Absolute auction: With this type of auction, the house is sold to the highest bidder, no matter how low or high the price is. This method is likely to garner more buyer interest and response, as a sale is guaranteed.
• Minimum bid auction: Only bids at or above a published minimum price will be accepted. This way, the seller carries less risk, while the buyer knows that bids over a certain amount will be seriously considered.
• Reserve auction: In this type of auction, buyers make offers and the seller can accept or reject the highest bid in a predetermined time period — generally up to 72 hours after the auction is over. Although a reserve auction poses the least amount of risk to sellers, buyers are less likely to bid because there is no guarantee that even the highest offer will be selected.

Step 4: Determine the qualification process for bidders

Ask how the auctioneer qualifies potential buyers. Depending on the auction, bidders may need to provide proof of funds or mortgage preapproval, register in advance, or submit a refundable bidding deposit. Find out what happens to the deposit if a bidder wins or withdraws.

Step 5: Decide how buyers will submit bids

Some auctions are held outside the house itself, where buyers gather and submit bids. In other scenarios, auctioneers hold so-called “ballroom sales” in a separate location, where multiple houses are auctioned off at the same event. Another convenient method is to accept advance bids online, via text, or telephone. Some auctioneers combine two or more methods to maximize their pool of prospective buyers.

What does it cost to sell a home at auction?

Selling a home at auction comes with costs, just as a traditional sale does. These can include auction commissions, marketing expenses, and other fees.

Pasternak estimates that an auctioneer’s flat fee can cost anywhere between $200 and $1,000, depending on your location, the property’s condition, and your real estate agency. “Generally, this means the cost will come out of the commission amount paid to the agency when they sell the home,” he says. “It’s a good idea to gain knowledge on auctioneer costs before indulging in setting up your property for auction.”

In his experience buying and selling in Texas, Minniti says you can expect to pay between 2.5% and 10% of the sale price to the auctioneer. Additionally, you may have to pay for advertising costs and hire an attorney to deal with the legal details of the auction. Depending on the auction agreement, the buyer may pay a buyer’s premium in addition to the winning bid. Sellers may also be responsible for auction commissions, advertising, legal fees, or other closing costs. Review which expenses apply and whether any fees are owed if the property doesn’t sell.

Pros and cons of going the auction route

If you’re still on the fence, it might be a good idea to compare the pros and cons of selling a home at auction.

Pros

• You can sell your home quickly, which can be helpful in a slow market.
• Depending on the type of auction, you don’t have to settle for below asking price if multiple buyers make offers in a bidding war.
• Your home will be visible to pre-qualified, serious buyers.
• There’s no need for scheduling or preparing for showings or open houses.
• You’ll have more privacy and can skip putting a sign in your yard or listing your property on the MLS (multiple listing service).
• You’ll avoid the hassle and uncertainty of back-and-forth negotiations with buyers.
• The auction house handles all marketing, promotions, and paperwork, saving you (and your agent) time and money.
• You’ll know exactly when your home will sell without having to wait days, weeks, or months for a buyer.
• The sale is not contingent on an appraisal or inspection.
• The home is typically sold as-is, so buyers don’t ask for repairs.

Cons

• There will be a smaller pool of buyers, as only qualified, ready-to-close buyers are allowed to bid.
• There’s a chance you may get less than expected or less than market value (auction terms and types vary).
• Auction costs can exceed traditional agent commissions.
• There is a risk that no one will buy your home, and a “no-sale” event can harm property value perceptions.
• You may still owe advertising, marketing, or other agreed-upon fees even if your home doesn’t sell.
• In some cases, there’s a perception that auction homes are all distressed properties.

Alternatives to selling a home at auction

Auctioning your home can be an attractive means of expediting the sale while still garnering a fair market price. However, if you decide that an auction isn’t for you, several other selling options may offer a faster or more predictable timeline. Some involve selling directly to a buyer, while others help you move before your current home sells.

• Franchisors: These are real estate investment companies that franchise their model under their company name. They typically buy homes as-is, have them fixed up, and either sell or rent. Examples include HomeVestors, known for its We Buy Ugly Houses brand, and We Buy Houses.
• House flippers: House flippers buy properties they believe they can renovate and resell turnkey for a profit. Their offers typically account for the cost of repairs, holding expenses, and expected resale value.
• Buy-and-hold investors: This type of buyer usually buys a home and then converts it into a rental property. A buy-and-hold investor will sell the property once it has appreciated in value enough, as part of a long-term investment strategy. These investors often hold a property for 10 years or more. Examples of buy-and-hold companies include Invitation Homes, Tricon Residential, American Homes 4 Rent (AMH), and Progress Residential.
• Trade-in or “buy before you sell”: These companies will offer to buy your current home and/or provide modern, convenient options that free up your equity to buy a new house. (No home sale contingency or paying two mortgages.) Examples include HomeLight Buy Before You Sell, Flyhomes, Orchard Move First, and Knock Bridge Loan™.
• iBuyers: This is perhaps the most recognized type of house-buying company. Most iBuyers use an automated valuation model (AVM) to generate an all-cash offer. Their offers are typically more competitive than most franchisors or house-flipping groups, relying on volume for their profits. iBuyers typically charge a service fee similar to a real estate agent’s commission, around 5%-6%, but some may also charge a variable fee depending on the situation. Example companies include Opendoor and Offerpad.

Another convenient and practical option is Simple Sale from HomeLight. It’s a fast, free online tool that provides a competitive, no-obligation cash offer to buy your home. Simple Sale also compares cash offers with what a home seller might get by listing with a traditional real estate agent or a discount agent.

Do you need a real estate agent to sell at auction?

Although it’s not a requirement, the experts agree that it’s in your best interests to have an experienced real estate agent representing you when selling a home at auction. As Pasternak points out, real estate agents have connections from the auction itself, so they can help take deals over the finish line and negotiate a good closing cost outside of the bidding process.

According to the NAR, there are several key benefits to partnering with a real estate agent in this situation. Before, during, and after the auction, the agent will assist with these key functions:

• Helping you choose the right auction house and auctioneer to sell your property.
• Performing market analysis and providing the auctioneer with a fact sheet for your property.
• Obtaining professional photographs of your home.
• Recommending any repairs or maintenance of the property before going to auction.
• Ensuring that all bidders go through the pre-qualification process.
• Keeping you apprised of feedback and progress.
• Assisting with the contract signing.
• Guiding you through inspections, financing, insurance, and other post-auction tasks.
• Accompanying you to the closing appointment.

For best results at auction, you should look for an agent who has experience with this type of sale — and with your type of property. HomeLight’s Agent Match platform makes it easy to find a great fit. Just enter your address, answer a few simple questions, and we’ll provide a list of top-performing agents in your area who can help make your auction sale a success.

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Is an auction right for your home sale?

These questions can help you decide whether the potential speed of an auction is worth considering. Your property’s condition, local buyer demand, expected sale price, and auction costs should also factor into the decision.

• Do you need cash proceeds from the home sale right away?
• Is the market changing fast, and do you need to sell quickly?
• Is home inventory low, and are buyers aggressively competing for property in your market?
• Are you carrying excessive costs to maintain the property?
• Have you already found a new home?
• Do you need to liquidate an estate or a home you inherited?
• Are you moving out of state in the near future?
• Do you have a listing that hasn’t generated much activity and is about to expire?
• Are you (or your agent) fairly confident that an auction would bring a fair market price for your home?
• Have you already bought another house and don’t want to carry two mortgages?

By being honest with yourself in answering these questions, carefully weighing the pros and cons, and soliciting the advice of a trusted real estate agent, you’ll be in a good position to make an informed decision about whether selling your home at auction is the right path for you.

Header Image Source: (Aubrey Odom / Unsplash)