Why you shouldn't sell your house at auction
A foreclosed home to be sold at auction in California.
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Here's an open letter to all of you who are contemplating selling your properties at auction:
Why not, I hear the collective ask. Your agent has told you it's a spectacular way to sell your house and to maximise your sale price. They say they don't know what the market is, and an auction is the only way to determine what your property is really worth.
Here's why an agent wants you to sell your house by auction:
1) No negotiating dealings; when the hammer falls they've sold the house and collected a commission.
2) No dealing with multiple parties of extended periods of time - offers and counter-offers are almost unheard of when selling by an auction.
3) You pay for the auctioneer; the agent just welcomes people to the room.
4) Three of four weeks of open homes, twice a week, is all the work they put in.
5) You pay for all the advertising, and the agency clips the ticket.
In short it is an incredibly easy way for an agent to sell your house for you. Great, it's an easy way to sell - for the agent. However, it's not an easy way to buy.
What?! Why not, I hear the collective ask. Obviously, if you can't buy at auction, you can't afford to buy my house, so it doesn't matter.
Well, I'll talk about my personal experience.
I am part of a dual-income family - no kids, and a household earning of more than $200,000 per annum. We own our current house and with the thoughts of wanting children we are looking to upgrade our home to a larger house. This means (for us) a more expensive house. The house we are currently looking at is being sold via auction, however, we won't attend the auction. And yes, we can afford it. However, what we can't afford is this:
Our current home is worth approximately $650,000, we have a 60 per cent mortgage on this property ($260,000 equity), plus we have savings in the bank giving us $360,000 in total.
We can't buy at auction for this very simple reason: While the bank will give us the money to buy the house we want, the finance is conditional on us selling our existing house. We can't afford the risk that'd we win the auction but are unable to sell our property before settlement. We'd lose our deposit, and risk being sued for settlement - so we won't buy at auction. Were this property being sold by negotiation or similar, then we would be able to make an offer subject to finance, sell our house and buy the new house.
Now the advantage to the owner here is that they get to decide whether or not to accept the offer, presumably they'd have a registered valuation to know what their property is worth, and the other advantage is that all of a sudden there is an increased number of potential purchasers for their property, people like us.
Someone loses out by not selling at auction - the agent. They need to work harder for you.
So when you're thinking of selling your home, and the agent tells you auction is the best way, as a buyer, it's not. As a seller, it's not. As an agent, it is.
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