In hot property centres like Toronto, Vancouver and the up-and-coming Hamilton real estate market, offloading a home via the auction process seems a laughable approach. After all, what seller wouldn’t want to encourage packed open houses, bully offers and drama-fraught bidding wars come offer night?
However, buying or selling a house via auction is a commonplace tactic in other parts of the world (for example, it’s quite typical in the UK, Australia, and New Zealand), and it does have a presence in the Canadian marketplace. While most cases involve banks trying to recoup costs from a foreclosure or offload an estate with no beneficiaries, auctions can also be an effective way to sell a very unique or stigmatized property, such as former grow-ops or homes with violent pasts.
And in Vancouver, selling a home at auction is just the latest way to create buzz over a listing; auctioneer company Harcourts recently held its first-ever Canadian event at the Pan Pacific Hotel, with a two-bedroom Vancouver condo on the block. The novelty caused a sensation, with the listing drawing 8,500 online viewings, and making the list of top five most-searched properties in the city.
However, homes exchanging hands via auction is quite a different process than going through a traditional real estate brokerage. There are implications both sellers and buyers should be aware of. Here’s what you should know before waving that bidding paddle.
How do Real Estate Auctions Work?
Like a traditional home sale, a listing is created for the property. Unlike a usual sale though, it is posted weeks in advance, which can be effective in generating a little extra buzz, similar to the “coming soon” sign tactic some agents use to let prospective buyers know a home is coming to market. Prospective bidders will also register in advance. This can be a refreshing change for buyers, frustrated at the often opaque and tense bidding process usually encountered in a traditional home sale. The seller then sets a minimum price threshold, and the home is awarded to whoever bids the most.
A few questions the seller should ask when listing at auction:
- What is the process for setting their minimum bid amount?
- Will an appraiser be required to determine the home’s worth?
- Will the home be removed from auction should the threshold not be met?
- Will the buyers be allowed to include purchase conditions such as home inspection and financing on their winning bid?
It's not the same as working with an agent
While some auction houses have real estate professionals on hand to help with the process, it’s not the same level of service you can expect from working with a brokerage. While you may be spared an agent’s commission fee, you won’t receive guidance regarding preparing your home for sale, showing it, and setting price expectations and strategy. Neither buyer nor seller will be protected under the Real Estate and Business Brokers Act (REBBA 2002), which mandates that a representing agent must always act in the best interest of their client. If you’re a newbie seller or buyer who needs an added layer of support, the auction ring may not be the best fit. And, while it may be obvious, the seller has no say in who wins the house – it will always go to the highest bidder.
Money is handled differently
When purchasing a home via a brokerage, your deposit is handled by a lawyer, and placed into a real estate trust until the home purchase closes. This may not be an included service when working at auction, and the buyer must source their own legal professional to handle the transfer of cash. The buyer may also be charged what’s known as a “buyer’s premium”, which is the auction house’s share of the home sale. This can be a quite hefty and unexpected closing cost.
As Canada’s real estate market continues to heat up, it’s unlikely that auctioning off properties will become a mainstream approach among sellers – but should you come across the opportunity to approach the action block, know the risks involved before bidding reaches the “going once, going twice” stage.
Penelope Graham is a managing editor at Zoocasa, a real estate brokerage based in Toronto.
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