Can Real Estate Auction Maximize Value in a Depressed Market

Q: I read your article on real estate auctions. I found it very interesting from a seller’s point of view. Our home has been on the market for close to six months now. We are in the Central Coast area of California, in Prunedale, about 50 miles south of San Jose. Our house is nine years old — we bought it before completion. The land area is “approximately” 1.19 acres, all of which is irrigated, either by sprinkler or drip irrigation.

Here’s the problem. I’d guess about four and a half hours after we listed our property, California real estate values began their plummet. After an initial appraisal, we priced the house at $1,050,000. We have subsequently reduced it to $995,000, then $ 935,000, then $895,000, followed by $875,000. We even advertised it agreeing to accept the highest offer over $835,000. With all of this movement on our part, we have never had even a ridiculous offer, let alone a realistic offer.

My wife and I are both retirement age and want to move back to Florida to be near our kids and grandkids. We can’t do that until we sell the house. We have been having rather heated debates with our broker on what to do about getting some people through the house, followed up by some offers. The broker is a well-known and well-regarded firm. On the whole they have done a good job, but we are beginning to differ on what do to next.

My position is that this current market is quite different than what existed a year ago, where all you had to do was list the property and bids would fly in almost immediately. I say that since the market has changed so dramatically, marketing methods have to change as well. They are dragging their feet, and are still using traditional methods, Internet ads, newspaper ads and open houses. Your article piqued my interest and my broker’s. I’ve found a bunch of national auction houses, but have no idea how to evaluate them. Uniformly it appears they charge the buyer a 1 percent fee, and the buyer pays all closing costs, so there seem to be no major distinguishing features.

Would you mind answering some questions for me? They are:

1. How do I judge which auction house is best for us?

2. Would it be preferable to use a local broker to a national one?

3. Do you have any feeling about other ways to market property given the state of real estate now?

4. If we go the auction route, should we attempt to find a lender ready to provide financing under varied scenarios (different amount down, different credit scores, etc.)?

A: You must first address the commitments you have under your current listing agreement before proceeding with an auction of the property. If you have entered into an exclusive right-to-sell listing agreement, your broker would be entitled to a commission if your property was sold in an auction.

Can your listing agreement be canceled or is it soon to expire? You should contact three or four auctioneers in your area who auction real estate. Ask about their experience, fees, references, the process and expenses associated with their endeavors. I would be concerned about the requirements and fees that they have for buyers. You will have to invest money in marketing the auction. The more you are willing to invest the greater the marketing effort. Before doing this, you should evaluate the likelihood of the property selling and you receiving a sales price that is acceptable.

To answer these questions you must review the sales activity of properties in your area and similar competing properties that are currently listed for sale. Based upon this review and in consultation with your current broker, you can evaluate the likelihood of being successful in an auction. In an auction sale the buyers are responsible for financing. Selling real estate in this market has many challenges. Review your broker’s marketing plans and request targeted marketing to local firms, real estate agent open house tours, selling agent incentives, increased signage and more open houses. The broker may have other avenues that are working in your market.

Dr. Thomas Musil is the director of the Shenehon Center for Real Estate in the Opus College of Business at the University of St. Thomas in Minneapolis. He has more than 25 years of experience in real estate as a broker, analyst, consultant and expert witness in real estate litigation and arbitration disputes. tamusil [at] stthomas.edu

Can a real estate auction maximize value in a depressed market?