How Does Auctioning a House Work?

Auctions have become a popular way to sell houses. In fact, the National Auctioneers Association has been generating billions in revenue over the last several years. And with the introduction of more online auctions, the popularity and prosperity of the process shows no signs of slowing down. If you’re looking to sell a house fast, auctions are a route to consider. And if you’re wondering how does auctioning a house work, continue reading below.

Reasons to Sell A House at an Auction

There are a variety of reasons folks choose to sell a house at an auction, including:

• Threat of Foreclosure
• Divorce
• Tired of Landlording
• Water Damage
• Termite Damage
• Relocating
• Probate or Inherited House
• Can’t Make Payments
• Can’t Afford House

In addition, many go the auction route because it’s a faster alternative to the traditional home-selling process. Once the home is sold at an auction, closing can typically be completed in 28-45 days.

Types of Home Auctions

There are 3 main types of home auctions. They are:

1. Minimum Bid

In a minimum bid auction, the lowest bid the auctioneer will accept for the home is set before the auction takes place. After the minimum has been hit, the home will be sold to the highest bidder.

2. Published Reserve

In a published reserve auction, the auctioneer also sets the lowest amount they will accept for the property, but the bidders set the opening price. If the minimum is not reached at the end of the auction, the auctioneer can either accept or reject the high bid. The seller can also make a counter offer.

3. Absolute Auction

In an absolute auction, there is no minimum amount or bid and the home goes to the highest bidder no matter what the final bid is. Because there is no reserve to be met, absolute auctions are generally the most popular of the three types of home auctions.

How to Sell Your House at an Auction

Now that you know the types of auctions, here are the steps to selling your property:

1. Find an Auctioneer

The first step in selling your house is finding an auctioneer. The easiest way to find one in your area is by going through the National Auctioneers Association.

There are several questions you’ll want to ask an auctioneer during the screening process, including how many houses have they sold, what type of marketing plan do they use, and what are their ethics and credentials. You can also check their references by speaking to their last three clients.

2. Choose the Type of Auction

After you’ve found an auctioneer, the next step is to choose the type of auction you wish to conduct. As we outlined above, there are 3 types of auctions to choose from. While absolute auctions will draw the most interest, they also come with the most risk. Once the hammer is dropped and the last bid is accepted, that’s the final amount you will receive. This could mean a potential profit or massive loss.

You can give yourself a safety net by choosing to set a reserve price, but you also run the risk of being unable to sell the house altogether.

3. Determine How Bidders Will Qualify

Now that you’ve chosen the type of auction, it’s time to determine how bidders will qualify. With some auction companies, bidders are required to show a letter of credit proving they are worthy of purchasing a home. Other companies may require bidders to have a certified check equal to as much as 10% of the expected sale price. You can work with the auctioneer to determine which type of bidder to allow at your auction.

4. Determine How to Accept Bids

The final step in selling a house at an auction is determining how you will accept bids on the property.  The most popular way is an “on the lawn” auction. In an “on the lawn” auction, bidders stand outside the property and make bids until the house is sold.

In a “ballroom” auction, homes are grouped together and sold in front of dozens, if not hundreds, of bidders. “Ballroom” auctions can drive up the price due to the competitiveness among those in attendance.

Sealed bids can also be made on your house in advance. These bids can be placed via telephone, the internet or smartphone app.

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