Recently we’ve noticed a lot of activity in the online home auctioning market and we decided to find out more. It appears that due to growing inventories and high rates of foreclosure in some areas, sellers are finding it harder to gauge their homes’ value and are uncertain about what marketing strategies to pursue. As these people seek alternative methods to sell their homes, some are finding that the auction block can offer a quick exit from stressful or disappointing real estate transactions. It can also help speed the process if the homeowners find themselves in financial trouble with mortgages, or if they are forced to relocate on a moment’s notice.

The auction block holds promise for sellers because it is a relatively quick way to guarantee a sale at a time when more and more homes are languishing on the traditional real estate market. Unfortunately, the rapidity of this medium comes at a price. In addition to steep auction fees, which can sometimes amount to over 10% of a home’s total value (compared with the 5% or 6% typically charged by traditional selling agents), there is no certainty that you will get what you think your home is worth. By comparing Zillow estimates with auction results, we found that many sellers can expect the final bid to fall somewhere within Zillow’s ballpark figure for the time period. Unfortunately, there is a fairly strong possibility that you will sell in the lower range of your home’s value, or even drop below it, before having to pay the expensive auction fees. Here are a few examples:

This home sold for 10% above the Zestimate before auction fees.

This one sold for about 4% above the Zestimate.

This one sold for slightly below the Zestimate.

And this home sold for significantly less than the Zestimate at a 35% discount

In one other extremely expensive example, a 1.2 acre Californian property brought in a final bid of almost $5.2 million, but according to Zillow estimates, the property was worth more than $6 million at the time of the sale three years ago. Even taking into account the ballpark nature of Zillow estimates, this seems to be an enormous discount. Indeed, it seems that more of the homes we checked out lost money than gained money from their auctions, and losers lost badly while winners tended to stay roughly within the range of their home’s Zestimated value.

So if you’re considering an online auction for your home, bear in mind that you may stand to lose a significant portion of your home’s value in the process. Even professional online auctioneers readily admit that their services aren’t for everyone. They believe the best potential sellers are the ones who have realistic expectations for the minimum prices of their homes, and those who are financially stable (those who don’t owe more in debt than they could earn in the sale). I would personally say that if you aren’t in a rush to sell your home, this method probably is not for you, and if you do try it for any reason, be prepared to lower your expectations. If you want to learn more about the auctioning process, you can practice bidding on real estate at RealtyBid International.

-Tony Floriani and Sandy Leung