WHY YOU SHOULD NEVER SELL YOUR HOME AT AUCTION

If you are persuaded to sell your home by auction, you will make it near impossible to sell for the best price. Most homes sold at public auction are short-sold, often massively so.

And, unfortunately, like most sellers, you will never realise what happened to you. Indeed, in many cases, sellers who sell by auction think they get a high-price, but it seldom occurs to them that they could have got a much higher price.

At most auctions, most sellers leave tens – even hundreds – of thousands of dollars on the table.

Here’s an example of what happens at most public auctions:

Let’s say that the sellers have a reserve price of $2 million.

And let’s say there are two bidders.

The first bidders have a maximum price of $2.1 million.

The second bidders have a maximum price of $2.5 million.

Once the auction starts, bids rise in amounts of one hundred thousand dollars.

First bid might be $1.5 million. Second bid $1.6 million. Third bid $1.7 million. Fourth bid $1.8 million. Fifth bid $1.9 million. Sixth bid $2 million.

Seventh bid $2.1 million.

The first bidders have now reached their bidding limit.

The second bidder (whose maximum price is $2.5 million) simply bids another $100,000 bringing the bidding price to $2.2 million.

And, because the bidding is above the reserve price (the sellers’ lowest price), the property is now sold.

Down comes the hammer – or a rolled-up paper. The auctioneer starts clapping. The crowd mostly lookers, neighbours, agents, and sticky beaks now claps.

The auction appears to be an enormous success.

Later, the agents may announce that the property sold “$200,000 above the reserve price”. The lowest price the sellers were prepared to accept (the reserve) was $2 million. So, sure, they got $200,000 more than their minimum price.

But even though their home was sold for $2.2 million, the winning buyer was prepared to pay $2.5 million.

So, here is the reality, the truth – and this happens at most auctions. Thousands of sellers undersell their homes when they choose public auction.

You see, instead of focusing on the Highest Price buyers will pay, auctions focus on the lowest price sellers will accept.

So, therefore in the above example, the home certainly did sell for $200,000 more than the sellers’ lowest price.

But few people noticed (or knew) that the Buyers’ Highest Price was $2.5 million.

And therefore, instead of selling for $200,000 extra, the home sold for $300,000 less than the winning buyer was willing to pay.
These sellers effectively lost $300,000.

The same thing – with varying numbers – happens at hundreds of auctions every week.

The clear message with public auctions is that they are the worst way to sell – if, of course, your aim is to sell your home for best price.