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What Is a House Auction?

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  • Written By: Cassie L. Damewood
  • Edited By: Heather Bailey
  • Last Modified Date: 30 July 2014
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A house auction, also known as a real estate auction, is a selling process in which prospective buyers bid against one another to purchase a home. The process is sometimes the result of foreclosure proceedings pending against the home. It is also frequently the preferred method to sell a house that is considered difficult to market. A house auction is also commonly favored if the owner wants to avoid the generally long process of hosting open houses and fielding offers.

When a homeowner decides to put a home up for sale by auction, a meeting with a professional auctioneer is frequently the initial step. The auction specialist and seller research similar homes in the area to determine a comparable market value (CMV) price. If no CMV homes are in the neighborhood, a reserve price is agreed upon by both parties. The house goes unsold if no bid is placed that is equal to or above this reserve price.

This process differs from an auction for a foreclosed property in which there is no reserve price. In this case, the highest bidder wins, regardless of the real value of the property. The drawback that buyers typically face is that the bank that foreclosed on the property may repeatedly counteroffer until a price they deem acceptable is reached.

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More adventurous real estate investors commonly seek out foreclosed properties that are sold cheaply but with the caveat that the property sale is classified “as is.” This means that upon the close of sale, the bank or lending institution is released from all liability regarding the condition of the property. This waiver includes pest infestation, property flaws in the areas of plumbing or electricity, and imperfections in the construction or foundation of the house.

It is often perceived that a house auction by a private seller will yield a selling price substantially above market value. Visions of eager buyers shouting higher and higher numbers are common, but in reality, this only occurs in extremely lopsided real estate markets where houses available for sale cannot meet the buying market’s demand. Most sellers who choose to sell through an auction do not make any more profit than going through traditional channels.

Most homeowners who opt to sell their homes through a house auction claim the choice was based on saving time, as an auction is a one-shot event. In the event it does not meet the reserved bid and goes unsold, the seller is at a disadvantage, as the public will now not offer a higher bid under any circumstances. In addition, the seller has to pay the auctioneer eight to nine percent of the reserve bid price whether or not the property sells.

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