Thursday, December 20, 2007

Short Sale Auctions explained

Yesterday I wrote about a new trend in the Short Sale market: round-robin auctions. Today I wanted to take a look at some of the benefits and drawbacks of this new model (because I think there are plenty of each!)

Short Sale Auctions


part 2


Benefits


  1. The seller is almost guaranteed to receive at least one offer. For many sellers, the time spent waiting for an offer, especially in a potential foreclosure situation, is emotionally draining.

  2. The true market price can be arrived at very quickly, and there's no disputing what that price is. This might, repeat MIGHT, make the banks more likely to accept the offer.

  3. Since the bank is the final determinant of whether or not the price is high enough, the seller isn't risking a price that's too low. (too bad, though, or this could be a nice approach for traditional sellers as well.)

  4. The seller does not have to accept a contract until the end of the auction period (she's simply receiving offers), so she is allowed to continue to market the property for sale without restrictions. This gives the seller more control than she normally has.

  5. The buyer maintains a level of control he normally doesn't have. The buyer can walk away anytime he wants to. He can also continue to bid higher, knowing what the competition is doing every step of the way.


Drawbacks


  1. The longer you wait to end the auction, the less time you leave for the banks to approve your contract. But if you end the auction too soon, you could be missing out on a better offer. Using the traditional method, you might have to wait longer than you'd like to receive an offer, but once you do you can start working on/with the banks.

  2. By making the buyer wait the process out without having an executed contract, you're opening the door for the buyer to walk away. Yes, the buyer can walk away on any deal (especially with the short sale addendum in place), but having a signed contract gives them a little more emotional commitment.

  3. If the sales price is likely to be in the $250,000 range, you're wasting a lot of people's time by starting the bidding so low.

  4. I don't think the seller cares about this one, but as more of these low-starting-bid prices are advertised, it's going to make analyzing a neighborhood a bit more challenging.


Overall, I think the benefits outweigh the drawbacks by a rather large margin. This is why I think we'll see this trend continue to pick up steam.

Your ready to be an auctioneer Realtor,

Chris Butterworth

[tags] short sale, auction, round robin auction, Fletcher Heights [/tags]