Is it time to take your home sale online?
Millions of Americans who are eager to sell their homes are losing hope. The real estate market is stuck, and there's a huge backlog of inventory weighing down potential sales.
However, today's technology gives sellers another alternative: online real estate auctions.
By going online, you can cast a larger sales net that reaches more buyers across the country and even around the world.
And you don't pay any commissions unless your home sells via an auction. Given homeowners' desperation to rope in more buyers, some online auctioneer heavyweights like eBay have even become players in the home auction arena.
That's why this small but growing facet of real estate sales is emerging as another vital home marketing tool. Private residential listings at Alabama-based RealtyBid.com have soared from 1 percent to 10 percent of business, says Tony Isbell, CEO of RealtyBid. (Foreclosures still account for the majority of sales.)
Sellers make a big mistake trying to sell a home themselves in a market with huge backlogs of property, says Matt Baker, CEO of Maryland-based Bid4Assets.com, another online auction site. Previously, multiple listing service operators had a lock on home sale information, making online sales more difficult, he adds. But that's increasingly changing as more information becomes available via the Internet.
These days, value-priced property sells best. At Bid4Assets, the sweet spot is $100,000 per home.
Yet before jumping into the online auction fray, sellers must weigh the following pros and cons:
The upsides of selling online
It can happen fast: Properties are often auctioned off quickly, usually within two weeks. "What makes an auction work is fear of losing," says Isbell.
In an online auction, the homes which sell the quickest are those which offer buyers the most details. Bid4Assets advises sellers to disclose as much information as possible--such as nearby attractions and a lot of high-quality photos.
"We walk sellers through the process," Baker says. Sellers can create storefronts and upload maps, title information and disclosures.
Bid4Assets also coaches you on the best days to hold an auction — usually weekdays.
Exposure the world over: Online auction sites are heavily trafficked. At Bid4Assets, hundreds of thousands of visitors check in weekly. And lately, foreign homebuyers--mainly from Europe, Israel, India and Canada--are popping up more and more. For even more exposure, Bid4Assets also syndicates their listings with 65 top real estate sites.
"We reach a wide global audience at the lowest transaction cost," Baker says.
You can also drive more traffic to your auction by posting your property on social networking sites like Facebook or Twitter, or uploading videos onto YouTube. Other free listing sites include Craigslist, Backpage and BiggerPockets.
At RealtyBid, sellers can't list the home themselves; they must go through an agent. However, you can request that your agent list your home on the site. And exposure is large--last month the site had 2 million visitors, including foreign buyers.
But as Bid4Assets, sellers can choose whether to list themselves or go through an agent.
Buyers are vetted: Online auction companies usually authenticate buyers. "We use wide-ranging tools," says Baker. For example, Bid4Assets uses proprietary databases to verify identity, matching names to credit cards and verifies working email addresses.
At RealtyBid, there's a $500 penalty if the buyer defaults on the winning bid. "Once they win the property, they have 24 hours to put down a 5 percent deposit," says Isbell. They have another 30 days to come up with the rest of the cash. These days, many buyers make all-cash payments, adds Daren Blomquist, a spokesman for RealtyTrac.com, an online marketplace of foreclosure properties based in Irvine, Calif.
If a winning bidder can't come up with the financing, the second-highest bidder gets a crack.
The downsides of selling online
Lower bidders may win: If you sell your home using the online auction approach, your home may sell for less than you would like. "If your objective is getting a certain price, an auction isn't the best strategy," says Blomquist.
There are protections, though. Sellers can set high reserves and withdraw a property if the reserve isn't met. However, sellers can lean on auction company expertise or utilize other online sources for valuing and setting an open bid.
Your home may not sell: At RealtyBid, only 55 percent of auctioned properties are ultimately sold. "The rest go back on the market," says Isbell. Then, people usually gather more information and put the home up for sale a second or third time.
So while an online auction may not be the best venue for every seller to market their home, it remains an alternative option for those struggling to sell in today's tough real estate market.
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Constance Gustke is a New York-based journalist who writes about business topics. She was a Fortune reporter, Forbes.com contributor and Worth features editor. Gustke is also a regular contributor to CNBC.