Home auctions not just for builders

One of the arguments in favor of auctions is their ability to immediately ascertain the market price that buyers are willing to pay. And, with the rise of the Internet, auctions are no longer just for builders trying to unload inventory: individuals are increasingly turning to them as well. From a story in the Wall Street Journal:

Individuals and developers unable or unwilling to wait are turning to live auctions for fast sales. While still only a small percentage of housing sales, the real-estate auction market climbed 5.3% in 2007, generating $58.4 billion, according to a recent report from the National Auctioneers Association, which is based in Overland Park, Kan.

The Commerce Department said new-home sales fell 26% in 2007, the steepest drop since records began in 1963. Last week, the National Association of Realtors announced that sales of previously owned single-family homes suffered the biggest annual drop in 25 years.

In contrast, auctioneers such as Joe R. Wilson had their best year in 2007. Mr. Wilson predicts the sluggish real-estate market and growing awareness about auctions will make 2008 even stronger. "Sellers like it because it's fast, efficient and effective," said Mr. Wilson of Wilson Auctioneers Inc. in Hot Springs, Ark. "Buyers like it because they believe they're getting a deal." He said more developers are turning to auctions to sell new developments...

Auctioneer Marty Higgenbotham said auctions give buyers confidence that they are paying a fair price. About a week ago, he sold 188 of his 200 new homes and townhouses in an auction in Minneapolis. He had hoped that prices would be close to 60% of asking price; they were 55% to 57%.

"A lot of people think auctions are a last resort, but it could be the best choice for many," says Harlan Rimmerman, director of education for the National Auctioneers Association. "An auction will tell you what the true market is."

That is because it puts buyers and sellers together and creates a sense of urgency...

Sellers can find reputable auctioneers through friends, family, real-estate agents and professional associations. They typically pay an upfront marketing fee, which varies but is usually about 1% to 2% of the sale price. The auctioneers use the money to advertise on the Internet, newspapers and postcards to prospective buyers. The seller decides ahead of time whether a sale is "absolute," meaning the property will be sold no matter what price is offered, or a reserve, meaning the seller has the right to accept or decline any or all bids. Some auctioneers charge a fee for an auction that doesn't result in a sale.