Anyone who has worked in the auction industry knows this question. It’s from a misconception that the only reason someone would auction off a property is because they are in trouble. There have been times like the Great Depression, the Savings and Loan Crisis and Farm Crisis when auctions grew as a result of financial distress. But those periods have long passed. And the strong real estate market has proven that auctions are not only a product of distress. According to the Wall Street Journal there have been two other times in the past 50 years when the unemployment rate was as low as the current rate of 3.8%: for several years in the late 60’s and for one month in 2000. That strong labor market, along with optimism about the American economy, have contributed to a robust real estate market.
Rising home prices paired with a strong labor market have helped create equity for homeowners. Nationwide, there has been an increase in “tappable” home equity of mo re than $820 billion in the last 12 months. And distressed existing homes sales are at their lowest level since 2008 according to the National Association of Realtors. In April of 2018, only 3.5% of transactions nationwide contained some element of distress. If the old perception – that auctions are driven by distress – were true, it would be logical to assume that auction sales are trailing off considering the strong real estate market. However, the exact opposite is true. The National Auctioneers Association reports that real estate auctions represent the fastest growing segment of the auction industry. There are likely several reasons for the continued growth of real estate auctions. The competitive bidding environment, transparent sales process, quick turn-around time, and contingency free transactions all offer sellers some definite advantages over the traditional listing method.
One thing is clear, though: Auctions are not driven by distress. As the real estate market has soared, auctions have not only persisted, they have thrived. The data demonstrates that auction growth may be attributable to the auction method’s unique ability to leverage a strong real estate market for the benefit of sellers. In short, auction sellers are not in trouble, they select the auction method of sale for a much simpler reason: auctions work.