Is It Better to Auction or Sell a House?

Real estate auctions and selling traditionally both have benefits and drawbacks for sellers.

By Emily Southey | 10 minute read

Sep 14

Is It Better to Auction or Sell a House?

Are you debating whether to sell your home at auction or go the traditional route of using a realtor? We can help you make that decision. Real estate auctions and selling traditionally both have benefits and drawbacks for sellers, which we delve into below. 

Selling a Home at Auction

Selling a home at auction is an attractive option for many homeowners. Real estate auctions are simple, convenient, and may result in a faster sale. Nowadays, real estate auctions take place both in person and online. Just as you would if you were selling your home the traditional way, a listing will be created and posted online a few weeks ahead of the auction. This allows potential buyers to learn about the property in advance and decide if they want to register to bid. 

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In a real estate auction, the seller works with the auction company to set the terms and conditions of the auction. For example, a seller can decide if they want the auction to be with reserve or without reserve. A with reserve auction stipulates that the property will only be sold if the highest bidder meets the reserve price, which the seller sets in collaboration with the auctioneer. In contrast, a without reserve or absolute auction is when the property is sold to the highest bidder, regardless of the price. 

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In most real estate auctions, properties are sold as is. Buyers know this going in, so sellers don’t have to deal with negotiations for repairs or home inspections. This makes home auctions a simple and convenient method by which to sell a property. 

The Pros of Selling a House at Auction

The benefits of selling a house at auction are as follows: 

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  • Save on real estate commissions: Sellers may save money by selling a house at auction. This is because they won’t have to pay a commission to a realtor and the buyer will be responsible for most costs associated with the auction in the form of a buyer’s premium. Plus, the winning bidder is required to make a non-refundable deposit that is typically around 10% (much higher than the average earnest deposit amount on a traditional home sale). 
  • A simple sales process: Another major benefit of selling a house at auction is that the seller doesn’t have to spend time negotiating with one or multiple buyers. Instead, the home is sold in as-is condition and contingencies are prohibited.  
  • Fast sale: If speed is a priority, housing auctions are great as the average auction timeline is 30 days or less.

“One of the main benefits of selling a home through an auction is that it might sell for more than what it would have sold for traditionally.”

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The Cons of Selling a Home at Auction

The following is a list of cons that may come with selling a home at auction: 

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  • There is no guarantee of a sale: One drawback of selling a home at auction is that a sale is not guaranteed. For example, if no one places a bid or if the highest bid does not meet the reserve price (in the case of a with reserve auction), then the sale will not go through. 
  • A smaller pool of buyers: Fewer people buy homes at auctions than they do the traditional way, which means your buyer pool instantly narrows when you sell a house at auction. Beyond that, some auction companies have restrictions on bidders (for example, financed purchases are not allowed), which can further reduce the buyer pool and lower your chances of a sale.

Selling a House Through a Traditional Realtor

One alternative to selling your home at auction is to sell it through a traditional realtor. This is the most common way of selling a home, and it involves listing your home on the market and working with an experienced realtor. 

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When you work with a realtor, you have a seasoned real estate expert at your fingertips. They can save you time and money by helping you navigate the entire home-selling process from start to finish. For example, they will conduct a comparative market analysis on your behalf to help you determine the right listing price, they can reach out to their extensive network to find a pool of qualified buyers, and they can recommend a range of reputable professionals to help with your home sale, such as a home inspector, home appraiser, contractor, or real estate attorney. 

On the other hand, the buyer might have more power than the seller in a traditional real estate sale, which is generally not the case in auctions (remember how homes sold at auction are sold as is without contingencies?) In a buyer’s market, homebuyers have the upper hand and can set the terms of the sale, including the closing date, purchase price, and contingencies. Not only could you end up with a worse deal but the selling process could be drawn out due to a long period of negotiations. However, if you’re selling your home in a seller’s market, there might still be a negotiation phase, but you would have the upper hand. There would likely be more competition, which could lead to a bidding war that ends in a much higher purchase price than if you’d sold your home at auction.

Key Considerations When Deciding Between Selling a Home at Auction or Using a Realtor

To decide whether selling a home at auction or using a realtor is right for you, consider the following three factors. 

Cost

Cost is one of the top factors that must be considered when choosing how to sell your home. The cost of selling your home through an auction versus selling it with a realtor varies. In an auction, the real estate auction company will likely demand a commission from the seller. The commission rates typically range between 6% and 10% of the sale price, which is far higher than the 2.5% commission you’re likely to pay when selling your house through a traditional realtor. That said, real estate auction commission rates can be negotiated. For example, the seller could negotiate with the auctioneer to raise the buyer’s premium in exchange for lowering the commission or include other fees in the commission price, like marketing and advertising. 

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Beyond the commission fees owed by sellers, the other financial aspect of selling a home using either method is the purchase price of the property. In some cases, selling a home at auction could garner a higher purchase price than selling a home with a realtor. But in other cases, it might be the opposite. In part, it depends on the condition of the home (fixer-uppers might be better off sold at auction), as well as the current real estate market (in a seller’s market, a seller may get more for a home if they sell it with a realtor).

Speed

A second factor to consider is speed. Timelines for selling a home at auction and selling a home using a realtor usually differ. Generally, selling a home at auction is typically quicker, taking just 30 days or less. The actual auction can take under an hour, and since properties are sold as is without conditions, there is no negotiation phase to drag out the home sale. 

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In contrast, selling a home through a traditional realtor usually takes a minimum of 45 days, and that’s in a seller’s market. The process can take much longer in a buyer’s market when it’s not uncommon for properties to sit on the market for months on end. Even if there is increased buyer demand, selling a home the traditional way usually involves negotiations, which extends the selling process. For example, going back and forth with counteroffers or adding financing, home inspection, or home sale contingencies, can make the process much longer.

Control

One final consideration when deciding between selling a home at auction versus using a realtor is control. Selling a home at a real estate auction tends to give the buyer a significant amount of control over the sale. As mentioned, auction homes are sold as is, which means the sale of the property is not conditional on a home inspection, buyer financing, or any other factor. This increased control is a major perk for many sellers. 

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On the other hand, when selling through a traditional realtor, the buyer has the power to negotiate. Though the seller is not required to give in to the buyer’s demands, they still have less control over the sale, especially if they want the sale to go through. For example, to successfully sell their home (particularly if it’s a buyer’s market), they may have to agree to unfavourable terms like completing certain repairs on the home prior to the date of possession or a home sale contingency.

The Two-Thirds Rule for Real Estate Auctions

One last tip if you’re stuck between selling a home at auction or selling traditionally is to consider the two-thirds rule. This rule works as follows: If two out of three of the elements that influence home sales lean toward selling your home at auction, a real estate auction is likely the best course of action. However, if only one element points in that direction, selling a home the traditional way might be the way to go. The three elements to consider when using the two-thirds rule are as follows: 

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  • The real estate market: Selling a home at auction can be a great option in a seller’s market when demand is high and inventory is low. Alternatively, auctions can also be well-suited to cooling markets in transition or if the home is unique enough to stand out from the crowd.  
  • The seller’s needs: The seller’s needs can also influence whether selling a home at auction is the right decision. For example, if speed and control are the top priorities, auctioning off your home could be the best choice. Auctions are ideal for sellers who want to sell quickly or want to get the best possible price for their home within a specified time frame. 
  • The condition of the home: The condition of the home is the final factor that can determine whether you’re better off selling your home at auction or through a realtor. Homes that are fixer-uppers, difficult to appraise, unique, or have been empty for a long time may be well-suited to a real estate auction.

The Bottom Line

The bottom line is this: There are times when selling a home at auction makes more sense, and there are times when selling a home traditionally is the best move. Generally speaking, real estate auctions are best during markets that are in transition, for properties that have unique or difficult-to-value features, or that are attractive to a specific type of buyer, and for sellers who want an accelerated selling process, are looking to liquidate their property quickly, do not want to make any repairs, have already purchased a new home, or are not interested in paying commission to a realtor. 

Frequently Asked Questions

Will putting a house up for auction affect its price?

Putting a house up for auction can affect its price. One of the main benefits of selling a home through auction is that it might sell for more than what it would have sold for traditionally. Typically, homes sold at auction are more likely to sell at market value. That said, sellers will need to account for other costs that come with selling a home through auction, such as commission and advertising fees. 

What happens after a house has been auctioned?

After a winner is declared, the auction company will collect the deposit from the buyer and send the necessary paperwork to the buyer and seller. Both parties will make the deal official by signing the purchase agreement. Please note that it is advisable to have a real estate attorney review the terms of the agreement before signing.

Should a realtor be involved in a house auction process? What are the fees?

Sellers can choose to work with a realtor when selling their home at auction. However, a realtor may not be interested unless they will be compensated for their time. Therefore, the seller might need to agree to a commission rate in exchange for the realtor’s help. Commission fees vary and can often be negotiated, so be sure to ask about fees before hiring a realtor. 

Can you auction your house online?

Yes, online auctions have dramatically risen in popularity. While in-person home auctions still exist, many real estate auctions are now conducted online. If you’re interested in an online auction for your home, find a real estate auction company in your area that specializes in online auctions. 

On the other hand, there are many reasons that realtors and sellers continue to favour open houses. Open houses offer a more relaxed environment for prospective buyers to tour the home. They also generate foot traffic, and the heavier the traffic, the more likely it is that a serious buyer will schedule a follow-up visit.

What types of houses sell the best at auctions?

Many types of houses are sold at auctions. However, some of the most common are fixer-uppers (those that have been neglected) and homes that have been foreclosed on.

Emily Southey

Wahi Writer