Lonzo and Deborah Shafer needed to sell their Capitol Hill row house quickly. Having financed the house at a high interest rate and facing a big payment, they turned to an auctioneer.

The house at 1441 Constitution Ave. NE, a speculative investment gone sour in the softening real estate market, drew three bids at an auction earlier this week. The highest was $74,000, a bit less than the Shafers's $78,000 mortgage on the property. And it was substantially lower than the $130,000 figure the Shafers were hoping to get to cover the note and $37,000 in construction expenses and leave them a $15,000 profit.

The auction method failed them that day, but the Shafers, having won a reprieve from their lender, are willing to try it again in a couple of weeks. "The auction is a good method for selling a house if you know the figure you can't go below," Lonzo Shafer said.

The Shafers are among a growing number of sellers who are staging auctions to sell their homes as an alternative to the more common listing process through real estate agents.

The National Association of Realtors (NAR), which once shunned auctions, surveyed nine leading auction firms on the use of auctions and found that in 1988 those firms auctioned 18,000 properties nationwide, up from 16,000 in 1987. When surveyed last year, the firms expected to auction 25,600 properties.

Two weeks ago, the NAR, which represents Realtors who depend on listing houses for sale, met with representatives of the National Association of Auctioneers to discuss how the real estate agents can better use the auction method. The NAR has set up a committee to study auctions.

"A lot of times people tend to think of an auction as a method of last resort," said NAR spokeswoman Tricia Morris. "We're finding it is becoming a more accepted method."

Further, as home sales drop and houses stay on the market longer, sellers may lower their expectations of obtaining large profits when they sell their homes. They would not hold out for the highest dollar, which is possible through the listing method, but would opt for the quicker sale though the auction.

Further, the planned auction by the Resolution Trust Corp. of $300 million or more worth of properties obtained from failed savings and loan associations has given the auction method a lot of media attention.

However, as the Shafers' experience illustrated, the auction method is not fail-safe. The Shafers believe the main reason they did not sell the property was because they advertised the auction only one week in advance. The next auction will have at least two weeks' publicity, they said.

W. Ron Evans, the auctioneer for the Shafer property, said an auction will bring three types of buyers: the bargain hunter looking for a steal; the investor-speculator who expects a profit at a later time or with a different sales technique; and the homeowner who will live on the property and who can be expected to pay the highest price. If only bargain hunters attend the auction, the bids will be low and the seller may not meet the maximum sales price objective.

Finally, the speed of the auction sale, promoted as a virtue of the method, can also be a hazard. When the auction gavel falls, the buyer has bought a house and the seller has sold one -- neither party has the luxury of leisurely studying offers or making counter-offers.

"No one is with you," Lonzo Shafer said. "You are strictly by yourself."

He recommended that prospective sellers seek legal advice about the auction process and have the lawyer review the contract with the auctioneer. Typically, auctioneers are paid 3 percent to 10 percent of the sales price as a commission. Six percent commissions are typical for sales through real estate agents.

"If it is backed up by proper marketing, the auction method can certainly do as well as any other method," said Ken Kerin, the NAR's staff director of the National Real Estate Auction Committee.

He said experiments are being conducted in which sellers under no pressure to sell are offering homes for sale at auction to see how well the method fares compared with the more traditional listing method.

Wayne Stewart, president of the National Association of Auctioneers and a real estate broker, said the real estate auction once suffered from a bad reputation because it was conducted by auctioneers with little, if any, real estate experience. Moreover, such auctions were often associated with farm foreclosures and distress sales on the courthouse steps. Auctioneers selling real estate are now more knowledgeable in the field and, most importantly, avoid promising quick or profitable sales of uncompetitive properties, he said.

Auctioneers argue that auctions have advantages over the listing method in determining the true market value of the property. In the listing method, a home seller sets a sales price, and waits for offers that are generally lower than the asking price.

In an auction, the situation is reversed. The auctioneer begins by calling a low bid, and the buyers compete among themselves and begin to raise the price. The bids that emerge, auctioneers say, represent what genuinely interested buyers are willing to pay for the property.

"When the property is sold at auction, it brings the top dollar for the property on that day without {subjecting sellers to} the holding costs associated with the listing method," said John Walter, a spokesman for the National Association of Auctioneers.

The auctioneers' group is planning to commission an economic study of the auction method versus the listing method to examine economic characteristics of auctions.

In its study of last year's auctions, the NAR compared auctions conducted by the Federal Housing Administration with listing sales of the same agency. Auctions accounted for 4 percent of the sales of the Department of Housing and Urban Development's single-family property disposition division. It found that HUD obtained $15 per square foot for such dwellings, compared to $30 per square foot it sold through brokers.

"This suggests that FHA may have less confidence in the ability of auctions to obtain favorable prices for better properties but believe auctions are an effective means of selling less expensive properties," wrote NAR economist Arthur L. Wright. "It may also mean that the agency has little hope of recovering much of their loan amount in certain properties and simply want to minimize their losses and dispose of the problem as quickly as possible."