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Why auction a property?

By Andrew Bell

Making the big decision to sell your home is a serious step, no doubt involving lots of personal considerations. A confluence of factors is likely contributing to your choice, including but not limited to family needs as well as career opportunities and financial opportunities. We real estate agents understand: you're managing a big puzzle. And as you make sense of your needs, there are additional pieces to consider about the sales process. There's more than one way to find the right buyer. Most likely, you'll be asking yourself: How will I sell the house?

Whether it's an investment property or a beloved family home, there are several ways to sell. There's the possibility to sell by yourself, without a real estate agent involved. This will require very high levels of expertise on your part. Then there's a private sale with agents involved. This too has some downsides, particularly that such a sale makes it difficult to garner and consider competing bids. That's the advantage of a real estate auction, which allows for bidding to help you realise the full value of your home.

Intrigued about auctions but wondering how it works?

Deciding to sell at auction or traditionally
Simply stated, an auction is the best way to sell your house quickly and efficiently. You'll set an auction date. Your real estate agent will market your property. Together you will agree on a reserve price. This is a formal price floor under which you won't automatically agree to sell the house on auction day; bidders must meet the reserve price to trigger the sale.

On the appointed date, the auction company will arrive and start the bidding process. Each bidder will be obligated to honour the contract as soon as the hammer falls after the final bid. In many ways, an auction is the tidiest way to handle this transaction.

Will there be some extra costs? Sure. But many of them would be otherwise incurred, including the cost of minor repairs ahead of a sale, any costs associated with staging your home and the expense of marketing the property.

If you want a quick sale, but aren't totally sure, consider the two-thirds rule. It states that if two of the three elements of a proposal skew in favour of an auction, it's wise to proceed. The elements are:

  • The market: Consider the market favourable for an auction if it is a seller's market, emerging market or one with pent-up demand (not enough supply or access to supply).
  • The seller: If the seller is seeking immediate resolution of the sale so as to have funds available for other purposes, an auction is an appropriate choice.
  • The property: An auction makes sense if there is equity in your home, if it is unique and if it is already or will soon be vacant.

Benefits of selling at auction
If you're wondering why you should consider an auction for the sale of your residential property, the answer might be as simple as speed. With an experienced auctioneer helping with the bidding process, a real estate auction is a fantastic mechanism to generate a fast sale. This is especially true if your home is in good sellable condition already.

Aren't sold on speed? Competition is another reason to go with an auction. More bidders who are emotionally and intellectually invested in your property are likely to bid up the cost. A bidder who attends an auction is a serious buyer. And in today's seller's market, we are seeing more and more registered bidders. Between June of 2020 and 2021, we saw registered bidders more than double, with an average of six registered per auction. And remember: Each bidder is contractually committed to the sale should their bid be the winning one.

This process — while it may be slightly nerve-wracking on the big day — can indeed save on time while perhaps bringing a higher selling price thanks to the bidding process. The auction process truly does eliminate your price ceiling.

Drawbacks of selling at auction
When making any big choice, it's wise to consider the downsides. Reasons you might decide not to use a real estate auction to attract the right buyer include certain factors about your property. If it is a particularly unusual property, it might not garner attention among the general public.

Perhaps it might not sell on auction day, thus incurring a stigma that might not help with a good sale price. If no favourable offers come in and the auction fails, this fact might (unnecessarily) cast shadows of doubt on other prospective buyers for the future.

There's also a general stigma among some buyers that auctions are only for distressed properties, extreme fixer-uppers or foreclosed-upon houses.

Understanding the real estate auction process
Once you weigh up the pros and cons of an auction, it's time to delve into the process. Underlying it all is the principle of transparency. The property should always be always accurately represented, the auction date should be advertised to all and the bidding should be open and fair.

The first step will be to contact an auction company or to discuss your interest in an auction with your real estate agent. Full-service agencies, like Ray White, can help auction your property.

Next, we'll analyse the condition of the home up for auction. This may involve deciding to make some necessary repairs or upgrades. Afterwards, we'll do the research necessary to set a reserve price. This can include a  property appraisal or valuation.

Once the reserve price is set, we can discuss the types of auctions: live, online auction or hybrid. Public health concerns may factor into this consideration. But once we've chosen a format, there's the work of marketing the sale and fielding any serious inquiries that arise ahead of auction day.

On auction day, prospective buyers will have the opportunity to view your property one last time. In accordance with the law, details about your home will be posted publicly for all prospective buyers to view. All bidders will have to register, which is another legal step. When the auctioneer opens bids, they will also share details about the property to eliminate any possible confusion. Their assistant will be on hand to officially acknowledge and document each bid.

Once the reserve price is met and surpassed, the bidding is considered live and will continue until no more bidding is happening. After the gavel falls on the final bid, the property is considered sold. The contract should be in effect that day, with a 10% deposit typically due straight away.

Auctions can be very exciting in addition to being efficient. There is showmanship and a bit of flourish generally expected. So if you're already imagining a gaggle of serious buyers clustered outside your home, each fully intending to pay a good price for your home, do contact us. The real estate professionals at Ray White Surfers Paradise are always keen to learn your goals and consider how we can help you reach them. It's an exciting time to sell a home in Australia, particularly in the hot Queensland market.

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