Gary Cardillo’s Southwest Florida Real Estate Blog

If someone came up to you and said, “I just purchased a house for $200,000  below what it was originally listed for,” your most likely response would be, “What a steal, someone must have been in big trouble to sell at that price.”  My question to you is, “Did that home sell conventionally, or did it sell at an auction?”

The problem most people have with an auction is the perceived stigma they feel is attached to it.  For many, the word auction conjures up a distressed sale by someone who is in serious financial trouble.  Visions of strangers coming through your home like vultures circling over their prey, is more than most people can bear.

In the past couple of years we have experienced a roller coaster ride in the real estate market that most people have never seen before, and may never see again.  Shortly after Hurricane Charley, many of those who purchased homes prior to 2004 saw the value of their properties soar.  Returns of 200% or greater were not out of the ordinary however, now that the market is going through its anticipated adjustment period, those profit margins are returning to more realistic numbers.  Investors who were giddy with the increases in the stock market in the late 1990’s through early 2000’s were joined by those real estate “investors” who enjoyed the meteoric rises prior to 2005; and how quickly we all went from being surprised by the “return on investment” to expecting that kind of return on investment; and for many it was the unwillingness to concede a significant part of those returns that kept home prices high that resulted in sluggish sales. Recently, Michael Saunders, founder of the Michael Saunders Real Estate Firm, was quoted regarding Sarasota and Bradenton’s 14% increase in home sales stating, “Early on, the Realtors in our area made a collective effort to get prices in line (realistic) that has attributed to our area’s growth.”  Although I believe, demographics played a larger role in their areas recent resurgence; it is the reference to the reduction of prices that is credited with their turnaround.  So what does this have to do with auctions?

With over 6300 homes on the market at the present time, there is more competition than ever for developers, investors and individual homeowners alike, to make the price of their homes as attractive as possible.  Incentives from developers in the form of cash discounts and credits towards upgrades are being offered to the buyer.  Higher commission rates, Hawaiian vacations and even Rolex watches are being offered to Realtors for bringing customers to them as they desperately seek to reduce their over inventoried positions.  Even some homeowners are offering higher commissions to the selling agent just to feel they are getting their homes shown more often however, with all of this being said, the bottom line is price. 

Today’s buyer still feels the market is adjusting, and with all the negatives in the press that continue to erode away at the their confidence level in the market, those willing to jump in are taking their time in making a decision and only doing so at a great price.  The only way to get today’s buyer off the fence and quickly, is by making the price too good to pass up.  Does that mean a “fire sale,” absolutely not!  But today’s buyer is looking for the assurance that even if the market does continue to adjust downward a bit more, they still negotiated a good enough deal now, where waiting an extra few months would not have put them in a position of getting a better deal then.  That brings us to “Auctions.”

An auction is nothing more than another tool that can be used to sell your home…..quickly.  There are many types of auctions from the Dutch Auction, that is similar to a conventional way of selling a home where the price starts high and works its way down, to the auction most people are familiar with where the auctioneer is trying to get the potential buyers to bid higher.  Recent statistics show that auctions will account for 30% of all real estate sales in the next few years and are currently the fastest growing segment in the real estate industry.  “Absolute” auctions are those where any offer is accepted regardless of price, whereas those with a “Reserve” are characterized by an established minimal bid or price that must be offered, or the property does not sell.  For those not willing to trust human nature to bid the price up, an auction with a reserve may be best for them.  But keep in mind, no one wants to see the other guy get the deal, and thus the price gets bid higher.  Statistics have shown that auctions also get a price very close to fair market value which is defined as,” The price at which a ready, willing and informed seller would sell his property and a ready, willing, and informed buyer would buy, neither party being under any pressure to act.” 

Instead of looking at an auction from the stereotypical point of view as a “distressed sale,” try looking at it as a guaranteed sale, in a guaranteed time frame.   Unless you purchased a home in the last year or two, auctions may be a very viable avenue for you to pursue if you are looking to sell your home quickly.  Banks are starting to look at auctions more favorably as well as “Short Sales,” as it helps them avoid the costly legal fees of foreclosures for those that are facing severe financial difficulties.  The benefit for you as a seller is the commissions are paid out of a “Buyer’s Premium” or participation fee.  That fee which can run from 10-15% of the purchase price, pays for any commissions due from the sale.  As a seller, you will have a set marketing fee usually for the month that can range from $2,500-$10,000, depending on the company.  While this may sound high at first, the marketing associated with the auction is very extensive that often- times includes national data bases.

Auctions are just one of the tools some of us use to sell homes for our clients; it by no means is being used to replace the existing way we sell homes today.  Depending on when you purchased your home and the price you paid in comparison to what the market will bear, will determine whether or not an auction is right for you.

As for the home I mentioned in the beginning of this article that sold for $200,000 below its original list price, if you thought it sold through an auction, you were wrong; but I bet most of you thought this was a desperate seller who had to give his house away through an auction.  In reality, this seller would not price his house aggressively enough, and as a result took over 200 days to sell his home for $200,000 less than his original asking price.  Had he considered an auction, he would have sold it in a fraction of the time and probably for a much better price, with a lot less frustration; and don’t forget about those monthly carrying costs!

You don’t have to be a desperate seller, just a highly motivated one, to realize the potential benefits of turning your money more quickly through an auction.   For more information on Auctions and other real estate questions, please feel free to contact us at 888-818-4945.

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