Selling a house with a bidding process. Here's how it works.
If you plan to sell your house, you are familiar with this dilemma: If the price is low, you can quickly get your real estate off the market. However, you still worry that you sold it below its value. However, if the advertised price is high, no one may be interested. A bidding process may be the solution.
What is the bidding process?
For bidding processes, the owner does not advertise their house at a fixed sale price. Instead, any interested parties will have the opportunity to bid on the property. This creates a competitive situation among the bidders if there is sufficient demand. This may maximize the sale price.
Prepare for the bidding process
Preparation for the bidding process is similar to a traditional house sale. After creating the sale documents, the seller advertises the property on internet portals and possibly in the newspaper in order to create awareness among potential buyers. It is important that the bidding process is referred to in the advertisement. The seller can define a minimum bid, but that is optional.
It makes sense to state a fixed viewing appointment in the advertisement to attract as many interested parties as possible at a specified time. A large number of visitors will increase the competition among the bidders. If the response to the first viewing is low, it is advisable to have another viewing a few weeks later.
Complete your house sale successfully
After the viewing, parties interested in the purchase can give their offers for a purchase price within a specific bidding deadline – usually two to three weeks. After the first round of bidding is completed, the seller will provide notification of the current highest bid. Then every bidder will have the opportunity to offer a higher bid. For most bidding processes, the second round is the final round. However, the seller can also hold more bidding rounds.
The seller should communicate the number of bidding rounds and the timeframe for the bidding deadlines to all participants in advance to ensure a proper, transparent process. The bidding process is completed when the seller and interested party come to an agreement and sign the purchase agreement. Then a notary certifies the contract, and the transfer of ownership is entered into the land records.
No obligation to sell the property
If the seller is not satisfied with the highest offer, the seller does not have to accept it. Unlike auctions, there is no obligation to sell in a bidding process. However, the interested party can also withdraw their offer. The purchaser is only obligated to pay the purchase price when the notarized purchase contract has been signed. Therefore, it is advisable to stay in contact with the other bidders and to renegotiate if the purchase contract fails.
The pros and cons of a bidding process
Although bidding processes are becoming more popular especially in urban centers, this sales method is not a free ticket to a smooth house sale. Sellers should be aware of these advantages and disadvantages.
- Bidding processes attract attention to the property and appeal to many interested parties.
- The sale process often takes place faster than with traditional advertising. Usually, this procedure lasts a maximum of three months.
- The competition among interested buyers can raise the price of the house.
- The seller does not have to accept the highest bid.
- Bidding processes attract bargain hunters who do not give serious offers. Sellers get around this by only accepting viewings upon prior notification.
- Not all interested parties like competitive pressure. Some may be overwhelmed or deterred.
- The competition could also have a negative impact on financially strong purchasers since they do not want to put forth the effort.
- The process may not necessarily result in the sale of the house since purchasers can withdraw their offer.
Summary: Bidding processes can be an interesting alternative to traditional house sales
Private sellers are very passionate about their property. That is why getting a good sale price is very important financially and emotionally. If the property meets the criteria of being a sought-after location and has a broadly appealing design, the bidding process is a promising alternative to traditional marketing. If no attractive offer is given, the seller can repeat the bidding process at any time or switch to a traditional method to sell the house.