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Selling at auction might be for you
Rick Levin of Rick Levin & Associates at a recent auction for a unique Park Ridge property. (June 12, 2010)
If so, selling at auction may be a good alternative to the traditional real estate approach. Auctions are gaining popularity with homeowners and developers who have quality properties to sell because they are predictable, effective and quick.
Contrary to popular belief, real estate auctions are not just for foreclosures, says Michael Fine of Fine & Co., a Chicago auction house. "Our business is primarily auctioning new construction residential for developers, occasionally in partnership with their banks. We also auction luxury homes from a half million to the multimillion dollar level for individual owners who want a more successful marketing approach."
The Nelsons are preparing to sell their full-floor Chicago penthouse at auction this summer through Fine & Co. Their home, at 247 E. Chestnut St., has been on the market for a year with no offers. It started at $1.9 million and dropped to $1.5 million.
"It is a very unusual place, and it's very difficult to get comps," says homeowner Vernon Nelson. The 4,700-square-foot home has 360-degree views of the lake and city, and many luxury features. "I think there is a niche to whom auctioning properties like this has an attraction that the traditional process doesn't. It's like exotic automobiles or art," Nelson says. "I feel confident that this is an attractive property and it will take a unique buyer we haven't found yet."
The appeal of the auction
Auctioneers say auctions appeal to sellers for several reasons. First, auctions sales are final, so there is no lengthy negotiation period over contingencies. Purchasing and closing dates are determined in advance, so sellers can plan. And auctions have very high closing rates, often 90-100 percent.
"From a seller's point of view, auctions are ideal," says Frank Diliberto of Chicago-based Diliberto Real Estate Services. The auction process accelerates the sales process. They can sell the property in four or five weeks. Generally, they will get many times the call volume and interest for their home. It's a good barometer of what the property is worth today to a buyer who can actually buy and close."
The costs of selling your home at auction are comparable to real estate commissions. However, Realtors are not shut out of the auction process. More and more auction houses are offering fees to Realtors if they bring a buyer or seller. At this point you may wonder whether you will get the fair market value for your home at auction.
Auctioneers say the auction itself reveals what the "market value" is.
"When you get a group of people in a room bidding, you get true market value," says Brian Kuzdas, owner of RealEstateAuctions.com. "It's a fair way of buying and selling property."
Sellers like the fact that they get to decide what type of auction to have. There are three types.
Absolute starts low and does not have a minimum price. "An absolute auction brings more buyers, and typically you get the highest price," says Rick Levin of Chicago-based Rick Levin & Associates. "But I would never advise someone who owes $400,000 to do an absolute in case it sells for $350,000."
A reserve auction is where the seller can accept or reject the highest bid. This protects the seller, but may turn off potential bidders.
A minimum bid auction sets a floor on what the seller is willing to accept. "Most consumers choose reserve or minimum bid," Levin says.
All about advertising
To attract the most bidders, auction houses conduct a media blitz of marketing and advertising for their auctions. They typically spend up to 5 percent of the cost of the property on marketing.
"We advertise big time in the newspapers, TV, online, billboards, radio, everywhere," says Rick Weinberg of REDC, one of the country's leading real estate auction companies. "We have a database of 5 million people who receive e-mail alerts of all our upcoming auctions."
Who can it work for
The process worked well for Kevin Chaffin of Riverview Builders in New Lenox. He recently sold one model home, four spec homes and 11 lots in Lockport at auction through Diliberto Auctions. "What's good about auctions is that they generate a lot of interest," Chaffin says. "We had a good turnout."
Chaffin says reducing his inventory allowed his company to move on to other projects.
If you're wondering whether your property is a good candidate for auction, Diliberto has this advice: "The seller must be able to deliver the property at what the market will pay. If their loan exceeds the value of the property, then the seller cannot deliver. If they are underwater, we have to make a deal with the lender that it can be sold at auction."
If you're thinking about auctioning your home, keep in mind that the financial due diligence has to be done ahead of time to make for a good auction. This brings both the buyer and seller what they want--a trouble-free transaction and a great value. ■