Sellers warned about pitfalls of auction hype

Just about everything seems to be sold by auction these days – with countless television shows proving that auctions sell everything for as much as possible as quickly as possible. But are seemingly quick and easy auctions a good way for investors to snatch up properties?

Perhaps not. Investors can fall prey to the excitement of an auction, paying more than they intended to for a property, caution experts.

“We certainly put more hype on the deal,” says Dan Peters, the owner of Dan Peters Auctions & Appraisals. “There’s more intensity and more hype than with a regular for sale sign.”

However, investors looking to offload a property as quickly as possible would certainly be interested in the all-cash atmosphere in which auctions operate. But is that too good to be true?

“Most statistics indicate that sales prices are lower by auction than for a property that’s more extensively marketed by Realtors,” argues Paul Martin, the broker of record and owner of Coldwell Banker Settlement Realty, adding that marketing is the largest draw an agent can offer. Since the auction process takes place over just a few hours, the property may not be exposed to the market long enough to generate a solid amount of interest. Plus, the weather could determine the turnout on auction day, resulting in fewer bids and a lower selling price.

“Exposure is what a Realtor brings to the table,” Martin says, “ensuring that the seller gets top dollar and the Realtor has exhausted all the marketing options.”
Martin also points out that there are a number of issues with buying and selling real estate via auction, most of those stemming from the exemption that auctions have from the Real Estate Brokers Act (REBA). When using an auction house, sellers are not required to disclose any issues with the property like a Realtor would. As a result, investors might find themselves faced with a property that needs a lot more work than they previously thought.

Peters admits that auctions are not overseen by any regulatory body, but says he discloses any issues of which he knows. Buyers are invited to investigate the property and bring in a home inspector (at their own cost), though the properties are still sold as-is in a cash-only deal with no conditions.

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