Real estate auctions began cropping up about four years ago, generally in places overbuilt with cookie-cutter homes. Initially, banks were auctioning off foreclosed properties. Then developers joined the bandwagon, trying to move their unsold inventory.
Bargains galore, right? Well, not exactly. In some cases, buyers got a bargain -- maybe a few grand below the neighborhood cops . But if it was bank-owned, they lost the right to home-seller disclosures, since banks don't have to tell you about property defects, even when they know about them. But in most cases, fear, wariness of the process and the fact that headlines told buyers daily that they were in the driver's seat and needn't rush into anything, kept them on the sidelines.
Eventually, the practice of auctioning off a home will be exposed for what it is: Just another way to market and move inventory. I half expected to see Macy's try it, but they prefer those ubiquitous one-day sales (that actually last two days) and when enough people don't come on sales days they just close a couple more stores to keep that bottom line healthy.
Don't believe me? The former chairman of the Chicago-based Sheldon Good auction company -- the nation's largest property auctioneer -- once said: "EBay is the greatest thing that ever happened to our industry." Why? Because it got people comfortable with buying and selling through the bidding process.
But I don't anticipate the practice of auctioning off homes to go away any time soon. Especially since the upper tier of the housing market has embraced it.
There is of course Cher's Hawaiian home, which is scheduled for auction on Jan. 18 and Concierge Auctions expects to fetch between $8 million and $12 million.
But guess what? If her unpublished reserve price isn't met, the house won't be let go for a nickel less than what the Sequined Diva wants. If that happens the property, a spec house she built but never lived in, will just wind up in the MLS.
Should you be in the market, the Balinese style property that Cher designed herself has a main residence and five freestanding bungalows totaling 8,821 square feet. Four have bedroom suites, and the fifth is a media bungalow with a bar. Ocean views to die for and yes, this is Hawaii.
Auctions generate a lot of buzz. They suggest a desperate seller who is ready to hand over the keys. The image of the poor farm family in the Iowa plains, circa 1920s, comes to mind, standing stoically by while the auctioneer's gavel finalizes the sale of their generations-old home and family business for 10-cents on the dollar. Puh-leaze. Nothing can be farther from the truth. This is marketing, plain and simple.
The only kind of auction in which you are likely to snag a bargain is an absolute auction, in which the highest bidder wins the property, no matter the price. In most cases, there is a "published reserve" or "minimum" bidding, which means the seller and auctioneer have agreed to accept the published minimum bid or higher. Think of those published minimum bids as the home's listing price, set a wee bit low to attract interest. The auctions that exist as marketing gimmicks are those with "unpublished reserves" -- like Cher's property -- in which the high bid is subject to the seller's acceptance. And if it isn't high enough, she isn't accepting.
And be mindful that auction buyers pay most or all of commission fees. "Buyer premiums," as they're called, typically are 7% to 10% of the sale price. Listing brokers usually get 2% to 2.5%; the auction companies get 8%.
Maybe Macy's is right after all: Hold a one-day sale on your property instead.
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