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daveramseyI found the following published letter from “Shannon” to Dave Ramsey, dated 2011.

The letter regarding the better choice between continuing to rent a couple homes, or sell them at auction:

    Dear Dave,

    I have a couple of rental houses, and I was thinking about unloading them at auction instead of renting them out again. What are your thoughts on selling homes at auction?

    Shannon

    Dear Shannon,

    First, let’s take a look at the two types of real estate auctions, absolute auctions and auctions with reserve. With an absolute auction, whatever the house sells for, that’s it. When the gavel drops, you’ve sold the house. An auction with reserve is where the seller, or his agent, reserves the right to accept or decline any and all bids. A minimum price may or may not be disclosed, and the seller reserves the right to accept or decline any bid within a specified time frame.

    As a general rule, auctions are not going to bring retail price. People who go to them are looking for a deal, so you’ve got to be willing to accept less than what the property’s actually worth. Essentially, what you’re doing is drawing out the vultures and hoping one of them will get excited and pay a price close to retail.

    Take a good look at your properties and the neighborhoods they’re in, and decide what you’re willing to accept. Then, talk it over with a quality auctioneer in your area. I’ve done pretty well selling properties at auction, and I’ve also found some great deals buying properties at auction. Of course, that meant someone else didn’t do so well!

    Dave

I certainly want to give Dave Ramsey credit for one thing: There are indeed only two types of auctions. Otherwise, he seems to have a substantial misunderstanding about real estate auctions.

I suspect Dave is contrasting real estate listing prices with auction results. For example, a home listed for $120,000 for 6 months ultimately sells for $85,000. What Dave might believe — and countless others (especially real estate agents) believe — is that a $120,000 house sold for $85,000 when in fact, an $85,000 house sold which was previously listed erroneously (overpriced) for $120,000.

A disturbing practice of some real estate agents is to adjust the list price upon sale, so their listing appears to sell for at or near list price. For example, this $120,000 home goes unsold for 6 months and ultimately the seller accepts an $85,000 offer. The agent withdraws the $120,000 listing (which would show the home sold for 71% of list price) and enters a new listing showing a list price of $89,000 (indicating the home sold for 96% of the list price.)

In our example, the real estate brokerage involved can tell people he or she sells property within 95% of list price, while the auctioneer in the neighborhood sells them for as little as 71% of list price. What you aren’t told is the brokerage is using two different list prices, and is clearly misrepresenting the facts.

Dave goes on to say that auctions attract people looking for a deal. He’s right; however, everyone is looking for a deal. Nobody in the traditional market sets out to pay, “full price,” either.

My last observation about this letter is Dave says, “As a general rule, auctions are not going to bring retail price.” Auctions bring market value, and not necessarily the so-called retail price real estate agents, appraisers, neighbors, friends or sellers often believe their property is worth.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.