Miriam Moore, Division President, Default, ServiceLink and Forbes Council Member
The pressures of the current U.S. housing market are causing a subtle shift in homebuying trends. When you factor in a general lack of inventory, rising property prices and multiple bid scenarios, some are finding it very difficult to compete in this environment. Time is of the essence, and decisions have to be made quickly to avoid potentially missing out on a property.
According to the National Association of Realtors, there was an average of 5.1 offers on every home sold in May 2021. That number declined to 3.8 offers in August, but competition is still more fierce than before the pandemic. Due to a lack of affordable housing and bargaining power, many first-time homebuyers have temporarily put their dreams of homeownership on hold until the market cools off a bit. As a result, this highly competitive landscape is driving more home buyers and personal investors to think past the traditional path to homeownership.
Redfin estimates that last year, 63% of homebuyers made an offer on a home sight unseen. That means they did not physically walk through the property or view it in person. A real estate agent may have toured it for them, but they weren’t able to get a first-hand look into the home’s features and flaws. While these numbers may have been inflated by factors related to the pandemic, buying sight unseen is gaining more traction, boosting the appeal of online real estate auctions.
In my previous article, "U.S. Housing Supply: Obstacles and Opportunities," I discussed one overlooked area of the housing market that has the potential to provide a slight uptick in the number of available properties. As more foreclosed homes end up on the market (now that the moratoriums have been lifted), a percentage of those will be offered at auction. While more education is certainly needed on the intricacies of purchasing a property at auction, we’re already seeing a growing appetite for it. A recent Harris Poll survey of more than 3,000 U.S. consumers, commissioned by my company, found that there is interest across generations. Twenty-one percent of Millennial consumers have bought a home at auction compared to 13% of Gen Z, 6% of Gen Xers and 4% of Baby Boomers. Also, keep in mind that 28% of U.S. consumers are not aware that you can buy a home at auction, 62% would consider buying a home at auction and 10% have done so already.
There are certain nuances about the auction market that buyers need to understand ahead of time. Here’s a quick overview of how it works and who could benefit from this alternative option.
Ease Of Use: Real estate auction sites display properties much like traditional auction websites. You can search for a particular location and view what’s available in the area. The listings often include the home’s specs, a property report and a few exterior images of the house and neighborhood. Auction properties, however, generally do not come with interior photos of the home.
Bring Your Cash: While the inability to physically tour the home may be a deterrent to some, those with a higher risk appetite may be more willing to move forward to capitalize on potential cost savings. Not every property sold at auction will go for well below market value, but savvy shoppers could certainly snag a deal. In a lot of cases, there is a threshold that has to be met for the seller to accept the offer. Some auctions also require cash and do not accept financing, so it’s important to read all of the terms of the auction.
Transformative Technology: For investors and those more familiar with the process, advancements in technology have been a time and money saver. Online auctions allow bidders to bid on properties remotely and track all activity on a personalized dashboard for added insight.
Ask The Experts: As with any major purchase, do your research. Seek the expertise of a real estate professional or law firm that specializes in this area. They can answer any questions and help you take your next steps.
While investors have used auction platforms for years to add to their portfolios, there is an opportunity for everyday buyers to further explore this segment of the housing market. The economic factors that are currently shaping the housing industry are nudging buyers into unfamiliar territory. Prior to the pandemic, buying a house sight unseen was not ideal and certainly not a necessity, but many are now having to make these types of decisions for the sake of homeownership. The auction market may be an alternative path to owning a home, but it’s one that I believe is positioned to become more popular in the months and years ahead.