Selling a House at Auction?

Shannon in Nashville wants to know Dave’s thoughts on selling a home at auction. She has a couple of rental houses and wonders if she could unload them that way instead of renting them out again.

QUESTION: Shannon in Nashville wants to know Dave’s thoughts on selling a home at auction. She has a couple of rental houses and wonders if she could unload them that way instead of renting them out again. Dave tells Shannon there are several factors to look at before making that decision.

ANSWER: There are two types of real estate auction: absolute auctions and auctions with reserve. An absolute auction is whatever the house sells for—that’s it. When the hammer drops, you sold the house. An auction with a reserve is where you hold a reserve. If you’re an investor or bidder, you want to go to an absolute auction. With the auction, you’re drawing out the vultures, hoping that a couple of them will get excited and overpay up to closer to what the house is actually worth.

You have to look at the condition of the property, the neighborhood, and what you’re willing to take—the lowest possible price—and talk that through with the auctioneer in the area. I’ve done very well selling properties at auction. I’ve done very well buying properties at auction, which means someone else didn’t do well.

The more expensive the property—except with rare and unique properties—the more difficult it is for an auction to work. I think you should gather information from the auctioneers and make a decision that way. Overall, auctions are generally not going to bring retail. That’s why they attract people. People are looking for a deal. You’ve got to be willing to accept less than retail to enter into either one of those processes with reserve or absolute.

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