Selling Real Estate at Auction

Everything you need to know about how to sell your home at auction.

By Emily Southey | 9 minute read

Sep 21

selling a house at a auction

Interested in selling your home at auction? Then you’ll need to make sure you’re fully prepared. Below is a step-by-step guide to selling real estate at auction, including a list of pros and cons. By the end of this article, you’ll have a new understanding of how house auctions work and the benefits and drawbacks of selling your home through one.

How to Sell a Home at Auction

Selling a home at auction is an excellent option for many homeowners. However, many sellers are unfamiliar with the process. As real estate auctions tend to move quickly, it’s important to understand how they work before starting the process. From finding a real estate auction company near you to negotiating the fee structure, keep reading to discover how to sell a home at auction. 

1. Set a realistic timeline

Before putting your home up for auction, you’ll need to consider your ideal timeline. As mentioned, selling a home at auction tends to be quicker than selling a home the traditional way, so sellers must be ready for this. Keeping in mind that the entire auction process can take 30 days or less, you must choose an ideal auction date. This date should be far enough away that you have ample time to find an auction company and advertise your property (you usually want to start promoting the auction at least a month in advance).

2. Find an auction company near you

The next step to selling a home at auction is to find an auction company near you. Not just any auction house will do. Rather, it’s crucial to find a qualified auctioneer (that is, one that specializes in real estate auctions). Research real estate auction companies online and be sure to read reviews or testimonials from sellers who have worked with them in the past. Finding a local auction house with experience auctioning off homes is of the utmost importance. To determine if a real estate auction company is right for you, ask them questions relating to the number of homes they’ve sold at auction, their marketing strategy for selling homes at auction, and their credentials. We also recommend asking about their fee structures, as selling a house at auction can come with hefty fees (not just for the buyer but for the seller, too). Sellers might be surprised to learn that some auction company commission rates are between 6% and 10% of the sale price, which is way above the average realtor’s commission rate. Therefore, ask each prospective auction company what fees they charge and at what rates. It’s also worth asking if they are open to negotiating the fee structure (more on that below).

    “Before putting your home up for auction, you’ll need to consider your ideal timeline. Selling a home at auction tends to be quicker than selling a home the traditional way, so sellers must be ready for this.”

    3. Negotiate the fee structure

    Once you’ve found a real estate auction company you want to work with, it’s time to negotiate. Most auction houses are open to negotiating the fee structure with the seller. Doing so can significantly reduce the number of fees the seller is required to pay. As mentioned, a typical auctioneer commission rate can fall between 6% and 10%, but with the right negotiation tactic, you could cut this rate in half. Generally, an auction house’s fees include an advanced deposit, buyer’s premium, commission rate, and marketing costs. The former two are the responsibility of the buyer while the latter two are the responsibility of the seller. However, the seller can try to negotiate with the auctioneer to reduce their commission rate (for example, in exchange for raising the buyer’s premium) or to include other costs, like the marketing fees, with their commission. Ultimately, negotiations are crucial if you want to pay minimal fees to sell your house at auction.  

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    4. Make a list of auction terms and conditions

    Next, it’s time to create a list of auction terms and conditions. As the seller, you have the right to determine many of the rules and restrictions of the sale. For example, you get to decide on the type of auction, the reserve price (if applicable), and the bidding style. You can also work with the auction house to determine the starting bid price or the buyer’s premium fee. 

     

    When it comes to choosing between a reserve or no reserve (absolute) auction, be sure to ask the auction company about a no-sale fee. Some auctioneers have no-sale fees, which are fees owed by the seller if the house does not sell. This is especially important if you are considering a reserve auction that gives you the right to reject the highest bid, regardless of the price. To determine which type of auction is right for you, you’ll need to consider your priorities along with the condition of the market. While reserve auctions give the seller more control over the sale and are generally less risky, no reserve auctions breed competition, which can lead to a higher purchase price. 

     

    Another important auction term to consider is the type of purchases to allow. Some auctions are only open to cash bidders, while others permit financed purchases, allowing buyers to fund their purchases through mortgage loans. Although cash buyers offer plenty of benefits, prohibiting financed purchases can significantly narrow the pool of buyers. If you’re selling your home at auction in a buyer’s market when demand is already low, limiting your auction to cash bidders could be a risky move. 

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    5. Market your home

    Promoting your auction is critical, as a well-marketed auction is likely to attract more buyers and therefore more bids. Since you won’t have more than a month to promote your home, every second counts. We recommend coming up with a relevant marketing strategy and taking advantage of several marketing channels. For example, beyond simply listing your home on the auctioneer’s website, you could promote the auction on social media, create a dedicated website for the property, put an ad in the local newspaper, or print out signage and brochures to place around the neighbourhood.

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    6. Auction off your home

    The sixth and final step to selling your home at auction is just that — to auction off your home! On the date of the auction, a representative of the auction house will conduct the sale, so you can sit back and relax (or, try your best to relax). Bidders will have registered in advance and will gather in person or online, depending on the auction. The auction host will introduce the home, state the starting bid price, and commence the bidding. In most cases, the home will go to the highest bidder. The bidder will then be required to make the mandatory deposit (usually within 24 hours of the sale), and the auctioneer will send the necessary paperwork (for example, the purchase agreement) to you and the buyer to sign.

    The Pros and Cons of Selling Real Estate at Auction

    To help you determine if selling a home at auction is right for you, the pros and cons of doing so are listed below. 

    The Pros

    • An easy sales process: Sellers don’t have to waste time negotiating with buyers. Instead, the home is sold as is, with no contingencies or improvements required. 
    • A fast sales process: Selling a home at auction can take as little as 30 days. 
    • Greater control: As a seller, you have more control over the sale of your house. You get to determine many of the terms and conditions of the auction, such as the type of auction, the bidding system, the reserve price, and the way purchases can be made (for example, financed or cash).
    • Cost savings: Selling a home at auction can result in significant cost savings for the seller. First, they won’t have to pay commission to a realtor, and while they will have to pay commission to the auction house, they can negotiate for a smaller fee. Plus, the deposits on homes sold at auction are mandated at a set price (usually 10%), which means you’ll likely earn a larger deposit from a home sold at auction than you would if you sold your home the traditional way.

    The Cons 

    • There is no guarantee of a sale: If no one places a bid on your home or if the highest bid does not meet the reserve price (in the case of a reserve auction), then the home will remain unsold.
    • Your home could sell below asking: If you agree to an absolute auction, the winning bid could be well below asking. 
    • Exclusive selling rates: The auction house might have exclusive selling rights to your property for a set period, which means that if your home doesn’t sell at auction, you won’t be able to contact another auctioneer or realtor until the exclusivity period expires.

    Frequently Asked Questions

    Is it a good idea to sell a house at auction?

    Whether it’s a good idea to sell a house at auction depends on several factors, including the seller’s priorities, the current real estate market, and the condition of the home. Carefully consider each of these factors or work with a realtor for help determining whether selling a house at auction is right for you. 

    How does selling a property at auction work?

    Selling a property at auction involves a seller contacting a real estate auction company to auction off their home. Homes sold through real estate auctions are marketed and listed on the auctioneer’s website roughly one month in advance of the auction date to generate interest. On the date of the auction, a representative from the auction company hosts the event and bidders place bids on the home. In most cases when a home is sold at auction, it goes to the highest bidder. 

    What percentage do most auction houses take?

    Auction houses typically charge commission rates between 6% and 10% of the sale price. However, this rate can be negotiated and is partially dependent on the rate of the buyer’s premium. 

    Do properties sell for less at auction?

    Properties can sell for less at auction. However, they can also sell for more. Homes that have been foreclosed on tend to sell at or below market value, which can be a major advantage to buyers. But some homes can sell for more than you would otherwise get depending on the condition of the market and your home. 

    What are the Pros and Cons of a Real Estate Sale by Auction?

    The pros of real estate sales by auction include cost savings, a simple and easy sales process, great control over the sale, and a fast sale. Meanwhile, the cons of selling a house at auction include a smaller pool of buyers, which means less competition and possibly a lower purchase price, no guarantee of a sale, and the auction company having exclusive rights to the home for a set period.

    Why auction a house instead of selling?

    A seller might choose to sell their home at auction rather than selling traditionally owing to the advantages it offers. For example, auctioning off your house gives a seller greater control over the sale and might allow them to sell their home faster. 

    Emily Southey

    Wahi Writer