Is Auction Right for You? Pt. 2

88 Reasons You Should Never Sell Your Home at Auction: Reason 2

The “competitive” myth

Auctions are not always the best option when selling your house due to a variety of reasons. Auctions put the seller at a disadvantage since they have less control over the sale price and process. Unlike through a traditional real estate sale, in which buyers and sellers can negotiate. Throughout this blog series we will cover 88 Reason Why You Should Never Sell Your Home at Auction by Neil Jenman.

Agents love to tell sellers that an auction is a competitive environment. They say all the buyers are brought together and the competition forces the price up.

Buyers do not buy real estate because of the method it is sold. It is not an auction that makes buyers buy a home, it’s the fact they love the home.

Buying a home is an emotional event. When buyers love a home, many will pay a huge price for that home – often well above its current value.

For example, a home might be worth, say $1.5 million, but if buyers love the home its not unusual for them to pay $2 million or more.

And yet, at auction, its common for these buyers to buy homes at hundreds of thousands of dollars below the price they are willing (and eager!) to pay.

Why?

Because auctions are not so much competitive. They are comparative.

At an auction, all buyers get to compare bids offered by other buyers.

And so, if a buyer has a limit of $2 million, but bidding is rising in amounts of $100,000 and the price reaches $1.5 million, the buyers with $2 million limit will increase a bid by $100,000 which takes it to $1.6 million.

If there are no other bidders to push the highest bidder higher the home is undersold by $400,000 below what the winning buyer was willing to pay. This happens at most auctions!

Auctions are not competitive, they are comparative. And that means a lower price.