The Truth About Auctions

Homesellers tempted to auction their homes should remember four words: AUCTIONS GET LOWER PRICES.

Never mind what agents tell you, never mind what you read in the papers, auctions are a financial minefield for consumers. Here are some points to consider if you’re thinking of selling at auction.

1. THE STARTING PRICE

It seems as if the price goes up at auctions. But that's only because it starts LOW. One of the BASIC principles of price negotiation is to ALWAYS START HIGH.

You will get a much higher price if you start higher and come down, than if you start lower and try to climb up. When you start low, you can get stuck low. If you want a high price, START high. Auctions start low. This is how auctions get lower prices.

2. RESERVE PRICE

The reserve price is the price at which the home can be sold. It's the lowest price a seller is prepared to accept. And that becomes the central focus of the auction. Most buyers at auction buy for less than their limit which means most sellers at auction under-sell their homes.

You can't possibly get the highest price for your home if the central focus is on the Sellers' Lowest Price. You can only get the highest price if the focus is on the Buyers' Highest Price.

As a seller, you are at a huge disadvantage because your lowest price, the 'reserve', is always disclosed BEFORE the home is sold. That’s when you hear the agent yell, “It’s ON the market”. Everyone knows your lowest price. This is how auctions get lower prices.

3. REPELS BUYERS

Research shows that more than 90 percent of buyers do NOT like auctions. It makes no sense to use a system of selling disliked by most of the buyers.

4. INCONVENIENT

One of the BASIC rules of marketing is: make it EASY for people to buy. Auctions do not make it easy. They make it hard.

5. BARGAIN HUNTERS

Investors, property dealers and bargain hunters all know that auctions are one of the best places to find cheap deals in real estate. It is well-known that deceased estates and mortgagee sales are often sold for a 'song' at auction.

Property investors, developers and dealers often buy at auction. But they almost NEVER sell at auction. That's because auctions get lower prices.

6. DECEPTION

To persuade sellers to auction their homes, agents will talk about high prices. And then to get buyers to come to the auction, the same agents will talk about low prices. Most times both the seller AND the buyer are deceived. The sellers end up selling for less than they were told they could get, and the buyers often end up paying more than they were told they could pay.