There’s a method to buying a home in the US, and an auction on a non-distressed property is rarely part of it. But things may be changing. Buying a property via a live auction may be the way you buy your next home in the San Francisco Bay Area, so here’s the scoop.
New Player in Town
Harcourts Auctions has been selling homes in Australia and New Zealand for decades. In fact, this kind of auction is the standard over there and all my family members (I’m half Aussie) have been doing it for years. That concept of home auctions failed to penetrate the housing market in the US during the Great Recession. A few companies tried, but it never truly caught on. Things have changed, and this company appears to be a large reason why.
Sounds like an advertisement, doesn’t it? Full disclosure – I’m not affiliated with them in any way. But I can tell you that as an impartial observer, momentum for this kind of thing is building in the Bay Area. I think you’ll be seeing more live auctions in the coming months, so it’s good to know what it is and how it works.
How it Works
Your agent is still the facilitator, but the auction is run very differently than a probate (where there is a special contract used and a mandatory 10% overbid to win on court confirmation day) or a foreclosure (where it’s buyer beware and all cash on the spot at the courthouse steps).
If you’re a buyer, your agent still facilitates all your showings, helps you review disclosures, advises you on any pitfalls they may see or have heard of, and counsels you on market value. You still do your normal due diligence, viewings, reviewing of disclosures and any investigations you deem necessary. You’re even free to make an offer at any time prior to the auction date which, per usual, the seller is free to accept or reject. If they accept, the auction is called off. If they reject the offer, marketing continues.
If you’re selling, your agent still manages all the showings, helps you provide all the necessary disclosures, get inspections and helps you prepare the property for market, answers all of the questions from the buyers and buyers’ agent, and generally markets and advocates for you every step of the way. You set a reserve bid amount, which is kept private, and the auction house, Harcourts in this case, follows up with all the leads and potential bidders and generally takes the temperature of how well an auction will be received. You’re free to take an offer at any time for any price that suits you, and come auction time, you’re free to not sell it if the bidders don’t show or if your reserve price isn’t met.
So What’s the Advantage?
For buyers, there’s no more wondering if you were $100,000 over the next highest bidder or how many offers there really were. It takes the buyer’s remorse worry out of the equation and there’s something about having control over your financial destiny in a more transparent way that makes losing out just a little bit easier, especially when you know someone else paid a dollar amount that wasn’t worth it to you.
For sellers, you get the benefit of additional exposure plus an established auction date that creates a sense of urgency and inspires action. Because the auction process means potential buyers don’t have a list price, the focus shifts to value. In a shifting market, such as the one that we’re in now, you get to see how many people really are willing to pay what for your home versus throwing out a line and hoping for a bite.
An Auction in Action
Here’s an example of a San Francisco home in a live auction. Note that the home sold way over its auction price, but still below what used to be the standard $1,000/per sq [ sales price in Soma. That means the buyers knew they had eight other bidders who were also interested in the property but the winning bid still didn’t “grossly” overpay given comparable sales.
“Non-Distressed” is the Key
To bid on a property in a Harcourts auction, buyers need a 3% cashier’s check and they have to sign off on the disclosures provided. Unlike a foreclosure, where you need cash in hand, you can still get a loan to purchase the auctioned home.
Want to Know More?
It’s not always easy to wrap your head around something new, but there are a lot of benefits to rethinking real estate to include live auctions. If you have questions about how an auction might work in your favor, I’m happy to help.