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Auctioneer John Nicholls looks over items during a recent estate auction in Fredericksburg. |
Duncan Van Ness thought his house in Louisa County should sell for about $350,000, but he wasn't sure he'd get that price.
Van Ness figured he would list the restored farmhouse on 22 acres the traditional way--with a Realtor, showings by appointment and maybe an open house or two.
But he happened across a magazine article about the growing popularity of buying and selling real estate at auction and thought, Why not?
He, his wife and baby son are moving to Hanover County to be closer to Van Ness' line of convenience stores and service stations in the Richmond area. If the house didn't sell at auction in the spring, Van Ness reasoned, he would have this summer to sell it traditionally while the Hanover home is being built.
On a sunny March day, auctioneer Danny Mastin of Mastin Auctions started the bidding considerably lower than the $350,000 Van Ness hoped to fetch.
Several people bid early, then dropped out, Van Ness recalled. Then it came down to two women who wanted the property for their horses.
The women raised the price past $400,000 before the bidding slowed. When it did, a new bidder stepped in and got the house for about $450,000 plus a 10 percent buyer's premium, bringing the total price to $495,000. (The buyer's premium pays the auctioneer, as a seller's commission pays a traditional Realtor.)
When Van Ness realized he'd net $450,000, he was tickled.
"I decided it was time to go get drunk and take advantage of myself, because I was a hundred thousand dollars richer," he said.
The buyer, who according to Van Ness owns several other rural properties in central Virginia, has agreed to let the family rent back until their new home is ready.
Not only did Van Ness get more than he expected for the property, he picked the day and time his house would be sold. And though bidders were welcome to preview the house before the sale, only two people did.
"You just don't get bombarded by people traipsing through your house and saying, 'I don't like those curtains '" Van Ness said.
That success story, auctioneer Mastin said, illustrates the advantages to a homeowner of selling unique properties at auction rather than through the traditional listing-and-showing method.
It also gives credence to area auctioneers' assertions that even in a softening real estate market, buyers will spend what it takes to get the property they want.
Using the auction method for real estate has advantages to both buyer and seller, auctioneers say.
The seller has the certainty of knowing he got the true market value of his house. And the buyer can be confident that there's at least one other qualified purchaser out there willing to pay almost as much--a reassuring thought to someone who might fear buying a white elephant.
Auctions have long been used for real estate transactions, but only in recent years has the method become commonplace.
According to a study done for the National Auctioneers Association, the value of residential real estate sold at auction nationwide in 2005 was estimated at $13.1 billion. That was an 8.2 percent increase from the previous year, the study said.
"It's definitely come of age," said John Nicholls, vice president of Nicholls Auction Co. and a licensed Realtor.
Today's buyers are comfortable with the bidding process because of the immensely popular online auction eBay, Nicholls said.
And the image of the Depression-era foreclosure auction on the courthouse steps is fading from the national consciousness. "It's losing some of the stigma," said Dan Pegelow of At Auction Real Estate, a branch of the Auction Man.
At the same time, time-pressed sellers are looking to simplify the traditional process of listings, disclosures, viewings, contract presentations, negotiations and contingencies, Pegelow said.
Generally at a real estate auction, the winning bid is a legal contract solidified by a substantial deposit--about 10 percent of the purchase price. Papers are signed minutes after the hammer falls, and a closing date is set.
There are no contingencies. It's the buyer's responsibility to have a house inspected before the sale date and to know in advance that he can get financing.
But auctioneers say not every property is a good candidate to be sold to the highest bidder.
"Any property can be sold at auction, but obviously there are some properties that are better suited than others," Pegelow said.
Generally, a unique property does best--a property with one-of-a-kind features that will excite the interest of multiple bidders.
Houses that need work are also good bets to sell at auction; investors buy them, fix them up and flip them for a profit.
It also helps if the seller has substantial equity in the property. "It's not good if you owe $350,000 and you need to get $355,000," Nicholls said. In such a case, it might be better to list through a conventional Realtor and set a price that will ensure that the seller doesn't have to bring money to the table at closing.
Rarely are auctions "absolute," a term that means that the property will go to the highest bidder regardless of price. Most owners set a reserve price, which isn't disclosed to bidders beforehand. If the bidding fails to reach the reserve, the auction ends without a sale. In such cases, the property owner may be required to reimburse the auctioneer for advertising and other costs.
Sellers who are still wary of the auction process should consider what happened with traditionally listed properties at the height of the sellers' market of the past five years, auctioneers said.
"You'd list a home on Monday afternoon, and by Tuesday afternoon you'd have six contracts," Nicholls said. "That's a little mini auction."
Pegelow agreed. "If you've got four people in 24 hours that are willing to buy your house," he said, "what are those people really willing to pay?"
To reach LAURA MOYER:
Email: lmoyer@freelancestar.com
