Buying a Home at Auction
Auction is Ray of Hope for Homebuyers Frustrated by Tight Housing Market
By Miriam Moore
In a market where bidding wars and soaring home prices have become the status quo, consumers — especially 25- to 40-year-old buyers — are embracing a broader range of homebuying options. Specifically, three out of four millennials and a majority of consumers across generations told ServiceLink through a recent consumer survey that they would consider buying a home at auction.
And why not? The end of foreclosure moratoriums is expected to send many more homes to auction in 2022, bolstering inventory and offering consumers greater choice. Plus, those familiar with the process of buying at auction know it often results in cost and time savings. And finally, the move from in-person to virtual, well, everything since the COVID-19 pandemic began has made people more comfortable with the idea of buying a property sight unseen through digital means. It’s not at all surprising that homebuyers are expanding their field of play to the (virtual) courthouse steps.
Following are some important takeaways from the Harris Poll survey commissioned by ServiceLink in the fourth quarter of 2021, which asked 3,000 U.S. consumers to share their insights into buying a home at auction and what they foresaw at that time for the 2022 real estate market.
75% of millennials would consider buying a home at auction — and they’re not the only ones
Consumers across generations are warming to the idea of buying a home at auction, although at a different pace. The willingness of baby boomers (ages 57-75) to consider the auction option — 54% said they would — is much lower than their younger counterparts: millennials (ages 25-40), at 75%; Gen Zers (ages 18-24), at 66%; and Gen Xers (ages 41-56), at 65%.
The fact that more than one in five millennials (21%) have already bought a home at auction demonstrates that they are beginning to put their money where their mouths are. Thirteen percent of the emerging Gen Z generation report that they have purchased homes at auction, more than twice the incidence of the older Gen X (6%) and baby boomer (4%) generations.
The wide discrepancy between younger and older buyers’ acceptance of auction may reflect its evolving image. When baby boomers were buying their first homes, auction was often viewed as a solution for quickly disposing of distressed properties. Younger generations are seeing auction in a new light: Yes, distressed properties are part of it, but more often than not, homes are being sold at auction because the seller likes the idea of getting cash in hand quickly and avoiding long-term carrying costs.
Price, speed and digital bidding tools fuel consumer enthusiasm
Turns out speed and cost are also big motivators among buyers. Throw the digital aspect of today’s auction into the mix, and it becomes an extremely attractive option for younger generations as well as anyone else concerned with limiting their face-to-face exposure during the home-buying process.
Seventy percent of survey respondents said that potential cost savings would motivate them to buy a home at auction; 57% said the same of a faster homebuying process. And more than half (55%) of millennials and 42% of consumers overall said the ability to bid online would motivate them to buy a home at auction. Remote bidding tools can make auctions more accessible, as travel is not necessary for participation.
On the flip side, consumers shared some concerns about buying at auction. Not being able to see the home in-person prior to buying (66%) and not being able to get a professional inspection (62%) are factors that would stop them from buying at auction.
Consumers are split on the 2022 market outlook
It’s interesting to note what consumers expect to see in the housing market this year. Not quite half of those surveyed (45%) said they look for home prices to continue increasing in 2022; if the other 55% are in the market to buy, they may be unpleasantly surprised, as most of us in the industry look for continued, albeit slower, home-price growth. Freddie Mac’s October 15, 2021 quarterly forecast calls for a 2022 increase of 7%, compared with 16.9% in 2021.
On the auction front, 39% of respondents expect an increase in foreclosed homes available for purchase in 2022. Again, while few sources have committed to actual numbers, there is widespread acknowledgment in the industry that the expiration of the CDC eviction moratorium, as well as state moratoriums, will push more homes to auction. As the ServiceLink research indicates, homebuyers will be prepared to pounce on those new opportunities.
The door is open for lenders to provide education
As more than a fourth (28%) of respondents were unaware that they had the option of buying a home at auction, lenders should recognize and leverage the opportunity to connect with homebuyers through auction education. They can not only make more buyers aware that auction is a viable option, but also offer more in-depth information about its benefits and drawbacks for those entertaining the idea of buying a home at auction.
For example, lenders might share information and insights into:
> Where homebuyers can go to see home auction listings
> How buying at auction may save them time and money
> How some auctions require cash rather than financing
> The risks involved in buying a home without a professional inspection and/or sight unseen
> The importance of checking for liens and claims before bidding
As the idea of buying a property at auction becomes more mainstream, we can expect to see more and more consumer activity in the auction space. There is great potential for homebuyers to fulfill their dreams of homeownership through auction, even in the midst of intense competition. That’s great news for the coming months as well as the future, as the real estate market continues evolving to meet the needs of emerging generations.
