Nearly Half of Homes in Collin County Sell at Auction

The Texas Residential Real Estate Market is Hot

For most families, their home is the single largest and most appreciable investment they will make. The idea is simple, buy a home, pay your mortgage, make improvements, build equity. In several Texas markets, the professional real estate industry is struggling to accurately price homes. Every seller and every real estate agent earnestly desires to sell homes for the maximum amount the market will bear. Real Estate agents walk a fine line between underpricing and overpricing. On one hand, underpricing the real estate agent risks losing thousands of dollars of their client’s money and commissions. On the other hand, if the agent overprices a property it goes stale and does not sell in an appropriate time.

Hot real estate markets are a blessing and a curse. Our staff recently compiled and studied data from several of the hottest residential real estate markets in the DFW metroplex. What we found was astonishing and should be worrisome for 65% of homeowners in Frisco who are in the process of selling their homes. Depending on the community, 37-65% of the homes sold were priced lower than they actually sold for.  Our data, provided by North Texas Real Estate Information Systems, showed pricing discrepancies from just a few hundred dollars to as much as $49,000 for single-family homes.

Realtors Struggle with Pricing

You may ask “Are Real Estate Agents really this inept?” Absolutely not. The problem, in this case, is not the real estate professional. It is the speed of the market. Seller’s need to understand that real estate professionals use “Sold” comparables to decipher market data and ultimately recommend a listing price, which is the best way to accurately establish a marketable value. The problem is the sold price is not reported until the transaction closes. If a home closes today it is highly likely that the price was negotiated 30, 45 or even 60 days prior to today. Each transaction has many moving pieces such as inspections, appraisals, and financing, not to mention the speed at which a seller is willing to surrender possession. When the real estate professional meets with a prospective seller tomorrow and uses the sale that closed today the market data may provide an illusion of freshness but in real-world terms it is 30-60 days old. These markets are simply moving upward so rapidly that the sales data cannot accurately portray market value.

Timing is Everything

Our staff also concluded that the average length of time a home is on the market is just over 8 days. Many properties experience only 1-3 days on the market, few see the 20th day on the market. Our staff actually threw out any property that was on the market for over 35 days, as it was a sign of extreme overpricing or total undesirability in the marketplace for some reason. Out of 110 reviewed properties, we threw out only four because of the 35 day cut-off. When property is selling in less than 72 hours sellers are only receiving offers from a limited number of the actual interested parties in the market. In layman’s terms, the property is not given an opportunity to ferment and get full exposure in the marketplace. Seller’s in these markets are like college kids getting drunk on Boone’s Farms Strawberry wine instead of slowing down, investing a short amount of time and enjoying the full bouquet of a 2005 Château Pétrus. While both get the job done, you’ll feel better in the morning knowing you slowed down and experienced the latter.

What Can Sellers Do?

If professional real estate agents are behind the curve, what is a seller to do? Simple, take control of the process. Let the market work for you and allow the buyers an opportunity to financially compete to own your property. Market your home by auction. Yes, by auction. Our data shows that 40% of homes in Collin County, Texas alone are being sold by auction. Just not in the traditional sense. When real estate professionals list a home and sell it for more than the asking price, with multiple offers they are selling by auction. The problem for sellers is you have listing specialists conducting auctions, much like going to your Proctologist when you need to go to the Dentist for a toothache. Both service providers are specialists, both have medical licenses, both have your good health in their best interest but they should not be interchangeable. When you think about it, do you really your Proctologist and Dentist to be the same person? Of course not. You should not want your listing agent to be your auctioneer either.

Auctioneers have the unique experience and education to handle the problems found in hot seller’s markets. They know how to manage what is often a high stress and chaotic process to achieve the maximum value for your property. An Auctioneer’s everyday job is to assemble multiple buyers and encourage them to compete against each other financially to own a particular offering. A Professional Auctioneer will establish a date and time your property will sell, whether it is an online or live auction. That date will give the auctioneer time to inform all interested buyers through their proven marketing plan about the offering, conduct open houses, showings and assemble them in one place at the time of the auction. A 21 day marketing period will certainly attract more competition on a predetermined date than a one-day listing. Thus, maximum competition results in maximum price.

Sellers Benefit From Auction Marketing

Experienced real estate auction firms know how to structure an auction to achieve the top price. Many buyers and real estate agents alike think that cash must be presented for the total sales price immediately following the auction. That is true in foreclosure sales, but not in the open market. Auctioneers have learned in recent years to move with the market and allow financing and appraisal contingencies to buyers to maximize the return for sellers. Inspections, Title Opinions, and surveys are often done prior to auction day so there are no unsavory surprises between the auction day and closing.

Sellers have different needs that can be solved with the services of a professional auctioneer. Say a seller wants a two-week temporary lease after closing to move out, not a problem. The auctioneer simply makes the Temporary Lease a condition to the auction and the successful buyer is contractually obligated to honor the lease. With an auction, the seller gets to set the rules, the date and the terms of the sale. They also remove themselves from the gut-wrenching negotiation process as the terms of sale are the same for all buyers and they are competing against each other instead of the seller.

In short, the auction process managed by a professional auctioneer with proper real estate licensing and experience will likely prove much more enjoyable for sellers in these hot markets. Additionally, auctioneers welcome the opportunity to work alongside real estate professionals who each have a common goal – to sell your home for the top market price. If you have a real estate professional that you are comfortable with but you want to consider selling by auction the two professionals can work together seamlessly with no additional cost to you, the seller. Experienced auctioneers will also offer traditional co-brokerage to any agent that brings a successful buyer to the auction which increases the pool of potential buyers and drives price even further.

Major Advantages of Real Estate Auctions over Conventional Listing

Auctions have many advantages for the seller over conventional listing methods.

for saleReal estate auctions offer many advantages in today’s market. Sellers typically prefer not to wait months or even years to receive an acceptable offer on their property. As a seller, you ideally want an offer as quickly as possible to turn a page in life and to move on. The auction method of sale is the only suitable choice for that situation. Selling real estate by auction is perfect for sellers who need to sell quickly but receive market value. The auction method of marketing is extremely important to establish market price on unique or large properties with a very small pool of potential buyers. To put it simply, a real estate auction establishes true market value of a specific property in a specific marketplace on a specific day.

The benefits of real estate auction greatly outweigh the mainstream listing method in many cases.

Put the Markets Focus on YOUR Property – An auction showcases your property to the marketplace, providing maximum visibility to the target market. Potential buyers must decide on your property first as it is date certain and will not be on the market past the auction date. In a conventional sale environment, your property will just be one of many (currently over 20,000 on our local system) that are minimally advertised in the Multiple Listing Service (MLS). At Alliance we belong to four of the major MLS systems in Texas. We place your auction on each system to notify all real estate professionals that your property will be sold at auction and invite them to register their buyers.

Lightening Fast Market Price –  Real estate auctions offer a marketing timeline for a residential property of 30 days, a large ranch takes 60 to 90 days. Mainstream listing methods typically take months for single family homes and years for large ranches. Real estate auctions compress the marketing timeline and notify all potential buyers that auction day is the day to buy.

“Real Estate Auctions take the control away from the buyer and gives it back to the seller”

The Sky is The Limit –  An auction does not have a ceiling when it comes to price. I doubt any auctioneer in World History has ever said “I’m stopping the bidding, it’s too high.” Auctions allow the market to speak for itself, that’s why world record prices are established at auction not by seller pricing. Conventional listing methods allow the highest possible price to be capped by the seller´s asking price.

Contingencies? We Don’t Need No Stinkin’ Contingencies – Properties offered at auction are sold “as-is”. This means the high bidder cannot back-out of the auction purchase contract without risking their escrow money because of inspections or lack of financing. Experts have estimated conventional sales have a fallout rate as high as 50% because of contingencies. This wears on the seller’s emotions and lengthens the time it will take to sell their property even more.

No Negotiation Zone – The auction method of marketing real estate pits buyer against buyer. This allows the seller to sit back and enjoy the escalation of price since the terms and conditions of the sale were established by the seller prior to the auction. Conventional sales processes pit the buyer and seller against each other causing an anxiety-ridden back and forth, sometimes for days or weeks. Many times, this results in strained relations between the buyer and seller even after negotiations have been settled.

True Market Value, NOW –  Markets ebb and flow faster and more often than ever before in World History. Real estate values can drop dramatically over the span of a 6 or 12 month listing agreement. When you are ready to sell, real estate auctions provide the catalyst to determine the true market value of your property within 60-90 days. All too often the conventional listing process starts out with overpricing a property immediately killing the interest of potential and serious buyers. At an auction, the fair market value of a property is established and goes up from there.

Timing, It’s Everything –  Real estate auctions allow the seller to control the marketing process on their chosen timeline. Conventional sales methods guarantee that sellers will play the waiting game. Sellers will wait on buyers to show interest, wait on them to come see your property, wait on them to make an offer, wait on them to accept your counter offer and wait on the option period to expire. But with an auction you have more control. Auctions are the fastest way to seriously move real estate because much of the waiting is simply eliminated.

Offers, Let’s Get a Bushel Basket of ‘em – In a conventional listing you rarely get multiple offers. If you do it is likely a good sign that you are under-priced. Typically, you can expect a painstaking process of waiting for an acceptable offer from a qualified buyer. Industry experts predict the average listing gets nearly three offers before an acceptable offer is made, but those offers are not at the same time. With an auction, you will get many offers presented on auction day until the highest and best offer is determined by the auctioneer. That’s the only one you wanted when you decided to sell.

Don´t waste time on often ineffective conventional listing process. Selling real estate by auction is the new way to get it done.