Selling a House at Auction vs. For Sale by Owner

selling house at auction vs for sale by owner

There are more ways to sell your home than ever before. Alternatives to a standard agent-assisted sale are growing, so deciding on the best course of action is harder than it used to be. We’re often asked about how the “for sale by owner” process compares with an auction. Both methods offer an owner more control over the sales process, so it’s a common question. There are several big differences between selling a house at auction versus a private sale.

This guide will help you understand how marketing and selling a house at auction compares to private sales. Read on to learn more about the pros and cons of each choice and how to decide on the best strategy to sell your home.

How To Auction Your Home

Marketing and Selling Your House At Auction

Is auctioning your house a good idea? For many, the answer is “Yes!” It’s a fast and hassle-free alternative to attempting to sell your home by yourself or listing it with a Realtor. In its most basic form, a real estate auction occurs when qualified buyers submit competing offers on-site or online, resulting in the sale of the house to the highest bidder.

Before the auction, professional real estate auction companies, such as Cates Auction, will aggressively market the house in a variety of ways to generate maximum interest. Extensive signage, direct mail, print, online advertising, social media, email marketing, telemarketing, and other channels are all used to promote the property and notify potential buyers of the upcoming auction.

A house sold at auction can be offered “with reserve,” or “absolute” (no reserve). A reserve is the lowest bid that a seller is willing to accept for the property and is established with the auction company in advance.

Unlike most private sales by owner or through a Realtor, houses sold through auction are sold as-is. This means the buyers cannot ask the sellers to do any additional work on the property. Additionally, bidders may not add any conditions or contingencies. With an auction, selling your house isn’t tied to appraisals, inspections, financing for a mortgage, or any other conditions the buyer may want to add. Instead, Cates Auction has strict requirements for bidders, which weeds out less serious buyers before they are allowed to bid.

Pros and Cons of Selling a House at Auction

The pros include:

  • You enjoy a simple sales process that requires no negotiating on your end.
  • The buyer pays all the real estate commissions (and a non-refundable deposit!).
  • The auction deadline creates buyer urgency.
  • The typical timeline is 30-days or less which eliminates carrying costs faster.
  • You set the terms and day of your auction so that you can plan your life accordingly.
  • The sale isn’t contingent on inspections and appraisals.
  • Buyers can’t ask you to do additional work or pay additional expenses since properties sell as-is.
  • The competitive bidding process helps you receive the true market value for your house.
  • Experienced professionals handle all the marketing, promotion, paperwork, and the auction event.

The cons include:

  • Marketing for an auction requires seller participation (in lieu of a commission).
  • Since bidders must meet stricter terms, the buyer pool is different than that for a private home sale.
  • Some buyers mistakenly assume all auctions are for distressed properties.

Selling Your Home or Property Yourself

Selling Your Home or Property Yourself

Selling your house, land, or personal property by yourself is usually referred to as “For Sale By Owner,” or FSBO. It’s different from auctions and most private real estate sales because you don’t have a professional to guide you or to handle the advertising and selling process.

FSBO sales appeal to motivated, do-it-yourself homeowners. One of the biggest reasons people turn to FSBO sales is to try to avoid paying real estate commissions. Realtors charge a commission (six percent is standard), and sellers are responsible for paying it when their home sells.

Selling a home yourself is contingent on your skills, motivation, and time. If you have plenty of time, don’t have a strict moving date, are familiar with real estate regulations/contracts, and are experienced at marketing, a FSBO sale can work well. Many people don’t fit this profile, so it’s no surprise that many FSBO listings don’t sell, and when they do, the average FSBO home sold for less than other types of homes.

Here a FSBO home netted $210,000, compared to $249,000 for agent-assisted sales. In short, FSBO home sales tend to take longer than other sales options. One survey showed that one in five FSBO sells.

Pros and Cons of For Sale by Owner Houses

The pros include:

    • Owners know their homes better than anyone.
    • You avoid paying some commission fees.
    • It’s appealing to do-it-yourself homeowners.

The cons include:

    • You must navigate the selling process without assistance.
    • It is highly unlikely that all potential buyers will know about the property.
    • Buyers and their agents will negotiate your asking price and terms.
    • The complexity of requirements and paperwork involved in selling a home have increased.
    • Most buyers net more money with an agent.
    • Marketing and exposure are contingent on your time and expertise.
    • Buyers have numerous “outs” even after signing a contract.
    • Lack of access to Realtor networks and professional tools.

Selling a Home Through a Traditional Realtor

Why Not to Sell a Home through a Traditional Realtor

Selling a home through a traditional Realtor is a third option and by far the most common approach. We’ll briefly cover agent-assisted house sales, since most people are already familiar with this option. Working with an agent to sell a home includes some of the pros and cons of both FSBO sales and selling a home at auction. You’ll contract with a Realtor who should market and promote your house until it is sold or until your listing agreement expires.,. A Realtor will represent you in ongoing negotiations with any prospective buyers and their agents.

Unlike an auction, an agent-assisted house listing doesn’t include an actual sale date and terms are usually stipulated by the buyer. An agent-assisted sale usually takes longer than selling a house at auction, but can be shorter than trying to sell a home yourself. Prospective buyers can submit offers when they’re interested, and the seller can choose to enter into a negotiation. Typically these offers are contingent on a variety of factors and often include requests for sellers to do additional work or cover additional expenses. A minimal, refundable deposit is usually included. If more than one buyer surfaces, those buyers don’t see each other’s offers or directly compete with one another.

It’s wise to learn more about how auction sales compare to regular sales before making your decision.

Is Auctioning a House a Good Idea?

Is Auctioning a Houes a Good Idea

Sometimes. Auctions are used to sell residential and commercial property, as well as tracts of land. The properties sold by professional auction companies are usually similar to those sold directly by owners. So how do you decide whether selling at auction is the right way to sell your home?

The National Association of Realtors (NAR), suggests the two-thirds rule to determine whether selling a house at auction is the best decision for your situation. Assess the market, the property, and your situation. If two of these situations favor an auction, it’s usually a good way to sell your property.

The Market

Auctions are a good way to sell homes in a variety of markets. To maximize the value of an auction, look for a market that:

  • Is changing rapidly
  • Has buyer interest but some inactivity
  • Views your property as unique (custom architecture or unique views can make it appealing to the market)
  • Has a high demand for sellers
  • Has an inventory shortage (buyers will compete aggressively)
  • Has an inventory surplus (buyers will be drawn to auction opportunities over traditional listings)

The Property

Consider an auction when the property:

  • Has high equity
  • Has high carrying costs for the seller
  • Is unique or difficult to value accurately
  • Needs specialized marketing or broader exposure to attract the right buyers

The Seller

Ideal auction situations include scenarios when the seller:

  • Is downsizing
  • Has a moved scheduled
  • Needs cash quickly
  • Wants to liquidate an estate, possibly including contents
  • Has some equity
  • Would rather not do work on the property
  • Is not interested in negotiations or other direct involvement
  • Is not expert in real estate matters
  • Has already purchased another property
  • Prefers not to pay a traditional Realtor commission

As a side note, auctions are an ideal way to help elderly persons sell a home when downsizing. If you’re helping a family member in the Kansas City area downsize, consider our senior transition auction services. We’ll work with you and your family to make their move easy while securing the greatest values for their home and unneeded personal property. If you’re considering selling a house and belongings together, consider our personal property and estate sales.

Deciding Between Selling a House at Auction and Private Sale

Deciding Between Selling a House at Auction and Private Sale

A number of variables can affect your decision about how to sell your home. For example, the amount of time and effort you’re able to put into the sales process as well as where you’re located can affect how you choose to sell your home. Your comfort with negotiating real estate terms,  your marketing expertise, and your timeline for moving also play roles in your decision.

Consider the following answers to some of the most frequently asked questions, or check out our Six Simple S’s to Selling Your Home at Auction.

What Happens When I Sell a Home Via Auction, and How Long Does It Take?

How long does it take to sell a home at auction?

In addition to vast differences in marketing strategy and purchase terms, your timeline for selling your home is one of the most important considerations when deciding between FSBO and an auction. Selling a house via auction marketing usually takes no more than 30 to 45 days (often less), and the auction itself is simply the conclusion of the process. Most of the work happens leading up to the auction and is focused on promoting your property and the bidding opportunity. Here are the three steps to the auction process:

  • Step 1: Determine the Time Line and Approach – The experienced staff at Cates Auction Real Estate Company will consult with you to recommend the best way to maximize the auction approach. We will evaluate your property and provide a thorough market analysis. We will discuss your goals, preferred scheduled and financial requirements in building out a specific auction strategy for the sale of your home.
  • Step 2: Promoting Your Property. Next, we’ll devise and execute a custom campaign to advertise your property and the auction event. By design, auctions have a short window with a definite deadline, so we only have a few weeks to engage all the potential bidders for your house. In contrast to limited advertising common to open-ended FSBO efforts,  we focus on saturation marketing which employs multiple channels simultaneously and repetitively during the brief advertising period.

A well-planned and property-specific marketing campaign with a clear call to action is crucial for selling a home at auction. We (1) use a wide variety of channels to reach potential bidders, both online and in-person, (2) combination of signage, print media, MLS and other listings, online marketing, direct mail, digital advertising, and social media to promote a home, (3) also, reach out to buyers’ agents directly.

During this time, we’ll host pre-sale inspections of the property for potential bidders and provide them with more information about the house, encouraging pre-auction offers and advance online bidding.

Throughout this phase, we’ll keep you updated with detailed weekly reports of all our activities and results.

  • Step 3: Auctioning Your Property. The actual bidding can take place online, on-site, or both. If it takes place online, bidders will register and submit their bids online. The winning bidder will pay the non-refundable deposit online also. “Online Only” auctions are usually open for several weeks, allowing bidders the participate at their convenience. On-site auctions are a live competition in which bidders may participate in person at the property or live online at a specified time.

Once the auction ends, the winning bidder is responsible for paying the non-refundable deposit and signing contracts immediately. We’ll work with the title company, buyer and seller to complete the closing process according to the auction terms.

How Long Does a FSBO Sale Take Compared to an Auction?

How Long Does For Sale by Owner Take Compared to Auction

Because they are open-ended and have limited exposure, most FSBO sales take significantly longer than auctions.

If you don’t have an interested buyer right away, expect a FSBO sale to take longer than your other options. One study found that homes for sale by owner spent an average of 68 days longer on the market than homes for sale with a realtor. In addition, about twenty percent of FSBO homes end up being listed by a Realtor.

Agent-assisted sales also usually take longer than auctions.   In addition to the time to get a property under contract, a traditional sale leaves a number of “outs” for a buyer to exit the process without consequence right up until the closing day. A contract that fails to close means that a property that has been tied up in escrow must now be put back on the market and the process started over.

How Does Marketing for an Auction Compare to Marketing a Home for a Private Sale?

The auction company’s marketing department promotes an auction for a home, not the homeowner. This removes a significant burden (and risk) during the already busy process of moving and selling a home. For many people, marketing their home is the most intimidating part of the sales process because they don’t possess the necessary expertise or have access to the necessary tools. Working with a professionally staffed real estate auction company removes these obstacles.

Compared to FSBO homes, professional real estate auctions are promoted far more aggressively across a wider variety of channels, helping to generate interest among potential buyers in a much shorter timeframe. This is possible because the sale date is predetermined and the advertising is built on a fixed schedule and budget. The process cannot be replicated on an open-ended listing. Marketing for a home auction targets key buyers by combining:

  • Extensive on-site and directional signage
  • Professionally designed brochures
  • A dedicated webpage
  • MLS and auction-specific listings with promoted entries
  • Online advertisements
  • Print advertisements in journals, magazines and specialty publications
  • Targeted direct mailings
  • Promoted social networking
  • Hosted open houses
  • Email blasts
  • Press releases
  • Outreach to buyers’ agents

When we promote an auction for a home, we use a well-planned marketing strategy that targets interested buyers. If you want to sell a home and your personal property simultaneously, our accelerated marketing strategies make it simple without any additional advertising expense.

By contrast, FSBO sales have relatively few marketing channels available to them. The most popular techniques used by homeowners selling their homes include:

  • Yard signs
  • Word of mouth through friends, relatives, and neighbors
  • Classifieds
  • Open houses
  • For-sale-by-owner websites
  • Personal social networking

Few homeowners use every channel. Generic yard signs are the most popular channel for FSBO homes because they are easy and cheap, but only 42 percent of homeowners use them. Other proven marketing techniques, like direct mail, were used in less than ten percent of FSBO listings. Professional networks and industry tools such as MLS are rarely available to FSBO sellers.

It is worth mentioning, again, that in addition to differences in advertising methods, there are also significant differences in the advertising message or “hook” offered to buyers. The FSBO message is simply that a home is for sale and there is an invitation to begin a negotiation on the buyer’s terms and timeline. In contrast, the auction message is that the home will be sold to the highest bidder on the specific date. Buyers understand that the property will, in fact, be changing hands and that they must act.

I Already Listed My Home as FSBO, but Can I still Use an Auction?

Already Listed My Home as FSBO, Can I still Use an Auction?

Yes, you can convert your listing to an auction at any time. It’s common for agents and homeowners to change strategies to utilize auction marketing to get a home sold. In fact, we have an entire program dedicated to partnering with real estate agents.

If I Schedule an Auction and Someone Wants to Buy Ahead of Time, What Happens?

That’s great! During the process of advertising the auction, it’s not uncommon for a buyer to want to make an offer in advance of the auction date. They simply submit the offer on the auction contract (all the same terms apply) and you decide whether to accept the offer and cancel your auction or decline the offer and invite the buyer to participate in bidding.

Will My Home Sell for Less If I Auction It Than If I Sell It Myself?

Not likely. Auction marketing exposes your house to a broader audience of buyers and competitive bidding means you sell it to the person willing to pay more than anyone else. That’s market value! The alternative of waiting it out for a particular price can sometimes work, though carrying costs must be considered in the true net, as well as the risk that no one surfaces. Traditional offers with higher purchase prices often include additional expenses to the seller that erode the ultimate net return.

Can I Turn Down a Bid at Auction If It’s Not What I Want?

Do I have to accept the final bid if I'm selling at auction?

That depends on how the auction was structured. There are two types of real estate auctions: absolute and reserve. An absolute auction will sell to the highest bidder. This type of auction generally draws the largest buyer pools and therefore the best selling prices. A reserve auction has a minimum bid requirement set by the seller at the time of the listing. If the high bid falls below the reserve, the seller must decide whether to accept it.

In some instances, the reserve or minimum bid may be published if the auction company believes it will help the sale and the seller agrees.

At Cates Auction and Realty Company, our staff will work with you to determine the best type of auction for your situation and property.

How Do the Costs of Selling a Home at Auction Compare to FSBO Sales?

There are several aspects to the cost of selling that must be considered:

  1. Advertising – The key to a successful sale is engaging all of the potential bidders. Auction advertising (described above and in detail here) is critical to getting the highest possible bid. Sellers participate in the direct cost portion of the auction advertising, which is based on our pre-negotiated bulk rates. Each campaign is highly customized to the property. Your Auction Specialist works directly with our marketing department to determine the cost of your campaign during the consultation phase. In contrast, FSBO sellers make their own advertising decisions and pay off-the-shelf rates. Smart FSBO sellers invest heavily in advertising their own properties in order to attract sellers. Of course, FSBO sellers can choose to spend very little on advertising if that’s a risk they want to take.
  2. Commissions –  In an auction sale, the buyer, rather than the seller pays all real estate commissions in the form of a “Buyer’s Premium” added to the high bid to determine the final selling price. The seller receives credit for the full amount of the high bid with no deductions for commission. In a FSBO situation, the amount and seller’s obligation to pay commission depends on if the buyer is represented by an agent and how the arrangement is negotiated among the parties.
  3. Opportunity costs – A full analysis of expenses must include two additional costs: The cost of holding the property indefinitely and the cost of selling below what another buyer would have paid. Auction caps holding costs and ensures that the property is sold to the person willing to pay the most. In contrast, holding costs are indefinite in a FSBO listing and if sold, the property goes to the first person to pay an amount acceptable to the owner.

I’m Curious. How Can I Find Out More?

We’re happy to answer all your questions, discuss your selling goals, and help you determine if real estate auction marketing is the best solution for you. Speak to a Cates Auction Specialist at 816-781-1134 or request a free property analysis.

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Cates Auction & Realty Co., Inc.
1440 Iron Street
North Kansas City, MO 64116