But auctions, both online and in-person, are emerging as a fast sales option. In fact, an online auction could even sell a house in minutes!
Early Show financial guru Ray Martin explained how home auctions work, and when they can be a good choice for buyers and sellers, on the program Thursday.
According to Martin:
Real estate auctions are growing in popularity, and they're not just for fixer-uppers and homes in foreclosure anymore.
Individual sellers, real estate agents, and even builders are beginning to turn to auctions.
Whether the auctions are conducted live or through an auction Web site, the process is generally the same: Sellers put their homes on the block, and determine things such as how long the auction will be listed, and the price. Bidders are then invited to inspect the homes and then, the auction is opened.
There are basically three types of auctions: reserve auctions, minimum bid auctions, and absolute auctions. For buyers and sellers, it's important to know the difference.
In a reserve auction, the seller sets two prices -- the initial bid price, which all bidders will know, and a reserve price, which is the minimum amount the seller will accept from any and all bidders. The reserve price is not disclosed to bidders, who are only told that there is a reserve price. Once the bidding has closed, and if no bids exceed the reserve price, the highest bid is reduced to an offer and the seller has the right to accept the bid within a specified amount of time.
Buyers try to guess the reserve price by entering low initial bids and receiving messages that the bid failed to meet the reserve price. Indeed, their bids won't be accepted until they enter a bid that is at least enough to meet the reserve.
In a minimum bid auction, the auctioneer only accepts bids above a published minimum price.
In an absolute auction, "the most exciting type of auction," there is no reserve price, so the property will be sold to the highest bidder, regardless of price. Since a sale is guaranteed, the bidder must be prepared to have his or her bid accepted, and buy quickly.
Sellers like reserve auctions because, even if a home fails to attract any bids over the reserve price, a seller will at least know what the market for their home is by examining the price of the bids received; after all: The value of a home is ultimately the price a buyer is willing to pay to a willing seller.
Home auctions can be attractive to sellers because homes can sell quickly, there's less need to keep showing the house, a larger market can be created (putting homes on the Web gives them worldwide exposure!), and "tire kickers" are eliminated. Sellers opting for auctions should, ideally, have lots of equity in their home.
Home auctions can be a good option for buyers because they might pay lower price, they can get a clear title (buying a home through foreclosure sales can often result in buying a home with additional liens and encumbrances on the title. But with home auctions, the seller is required to deliver a clear title to the buyer). And you can inspect the home before you buy it.
The Internet is a great place to find out about live and online auctions. There are many Web sites devoted to them, including realtybid.com, rasnw.com, and auctioneers.org (the site of the National Auctioneers Association). These sites can help you locate live auctions in your area, as well as online auctions where you can actually bid on homes.
Other good places to learn about auctions are your local newspaper and local trade newspapers. And with the Web, you can now usually get trade newspapers from around the country. That helps for people looking to move to another state.
If you choose to try to sell your house via an auction, it's wise to set opening and reserve prices, offer incentives, and create a marketing plan.
Buyers choosing auctions should set a limit on the price they'd pay, and inspect the home and research it. Don't just take the information you see on the Web as gospel; you need to visit the homes listed for the auction and do your due diligence. For example, during a trip to a Palm Springs, Calif., location of homes listed for auction, local residents warned Martin about buying in certain locations that are more susceptible to sand damage -- the damage to windows and cars caused by sand-driven by gale force winds during the "windy season" -- a time during the year when seasonal changes cause the Santa Anna winds to blow particularly harshly. O course, the auction was help during the less windy "calm" season, so unsuspecting buyers wouldn't know about the wind situation unless they were told by locals. Another tip for buyers: get your financing approved ahead of time.