With home sales both new and used falling to an all time low many people are looking for anything that may attract a buyer. Although short sales where the price of the home is less then the mortgage that is held on it have to be approved by your lender even people or developers that own their property outright are finding it difficult to price their home in the current market.
This week a developer in south New Jersey that built a high dollar beach front property with about 100 units decided to place about 15% of their units up for auction. Just last year the units were listed for $950,000 and property of this type is meant to be purchased by the elite rich of New York City and Philadelphia.
About 6 years ago I had the chance to work on a few detached homes located in a slightly better area between Ocean City and Atlantic City. Those homes were 3,000 feet and larger with their first floor raised 16 feet to provide parking and offset damage from winter storms. They were huge homes by anyone’s standard and right on the beach. The asking price for this size home was from 3 million up depending of features.
To ask 1 million dollars for a condo where you must share everything and still pay huge maintenance fees is defiantly not going to attract the average person so the developer decided to start his auction at just over $300,000. This is 60% off their asking price and it makes you wonder what you may be getting yourself into as a buyer.
However as a seller you have to do whatever you can to get your home sold at a fair price and also quickly.
Home Auctions
Many homes are sold by banks at public auction. This is normally due to foreclosure and the need to remove the home from the bank’s holding. Banks must sell their assets because their investors / bank owners.. require it in the company bylaws. If not then banks would hold on to a large number of assets such as cars and homes and other things people take out loans for.
Public Auctions of this type are also available to the average person and often you see sales of homes by auction after a relative dies and the property must be split up and the money divided between many heirs.
Public auctions have a major drawback that the sales are cash or check in hand. This means the number of potential buyers will be limited. Even people that are pre-qualified for standard home loans probably won’t be able to bid without the bank getting a full inspection of the home first.
Those buyers that may be interested are probably looking for an investment and won’t be willing to pay the same amount a person who wants to live in the home will give you.
Online Auctions are another option and yes you can sell your home on Ebay if you want but you will want to protect yourself against fake bidders. If you are thinking about an online auction you must read all of the rules that the auction site requires you to follow.
You should also research past auctions that have completed and those that have been relisted. Don’t be afraid to contact sellers about their sales.
Normally online auctions by professionals are not for the full asking price of the home but for the ability to buy at a stated price.
For instance if your home is worth $125,000 and that is what you want to get for it then you may list your auction as the right to purchase the home at $100,000 and set a minimum starting price of an amount you are willing to bargain with the buyer. Such as $2,500 starting price to ward off any fools.
You should only allow bidders with good histories to bid on your property.
Setting Your Price
Always remember that your property can be sold and with increasing populations there are always potential buyers. The problem you have is setting a price that will attract a buyer.
Unfortunately things are moving too fast to simply rely on previous sales comps for your area. Comps are good when a market is stable or always heading in a specific direction. Since the market can fluctuate in a matter of days rather than months or years your price should always allow for offers from a buyer.
If you find that you are listing your home far above any offers or higher then other properties that have sold in the last month you may need to reevaluate your asking price.
This is not to say you can’t hold out for a better offer and you should never allow a realtor to pressure you into lowering your asking price because they get paid on commission meaning if you drop your price $50,000 then the realtor is only out a few hundred dollars while you just blew your down payment on your new home. Honestly realtors are not very honest when they ask you to lower asking prices. Its all about time and money to them.
Protecting Yourself
Like with any sale you want to write the language of the auction in such a way that you are protected from loss.
You can have the buyer cover your auction costs by adding a paperwork fee or other fee.
You can have a clause that allows you to end the auction even after it has completed if the winner does not pay you immediately.
You can have the winner pay you the full price of the auction even if they back out of the final purchase. This is important because you will need to pay the auction company either online or onsite a percentage of the winning bid.
You can limit the auction to only qualified buyers that have either the money or a lender already set to provide the funds.
Research how other sellers limit their liability and then add as many additional limitations as you can think of. And it may not be a bad idea to contact a lawyer if you are looking at losing a large amount of money.
Final Note
In the End selling your home is about getting the right buyer to give you the right amount of money. People are interested in auctions but often they just like to look or want to offer an unreasonable low bid that will gain them a lot of profit.
Just like any other sale you need to look at all of the potential problems and costs.
Cover your costs with fees and your liability with contract rules.
In the end you probably won’t get your full asking price unless you priced your home well below market value but you will have sold your home and that is a big part of moving on with your life and making the best out of a tough situation.