Real Estate Auctions

What is a real estate auction? A real estate auction is an innovative and effective method of selling real estate. It's an intense and accelerated real estate marketing process that involves the public sale of any property and most certainly including those that are non-distressed - through open cry, competitive bid. How will an auction benefit me? A real estate auction is a win-win proposition for everyone involved. BENEFITS TO SELLER: Seller pays no commission Buyers come prepared to buy Quick disposal reduces long-term carrying costs including taxes and maintenance Assurance that property will be sold for true market value Exposes property to a large number of pre-qualified buyers Creates competition among buyers - auction prices can exceed the price of a negotiated sale Requires potential buyers to pre-qualify for financing The seller knows exactly when the property will sell Eliminates numerous and unscheduled showing Takes the seller out of the process Ensures an aggressive marketing program that increases interest and visibility BENEFITS TO BUYER: Smart investments are made as properties are usually purchased at fair market value through competitive bidding The buyer knows the seller is committed to sell In multi-property auctions the buyer sees many offerings in the same price at the same time Buyers determine the purchase price Auctions eliminate long negotiation periods Auctions reduce time to purchase property Purchasing and closing dates are known Buyers know that they are competing fairly and on the same terms as all other buyers Buyers are given comprehensive information on property via due diligence packet BENEFITS TO REALTOR: Generates a list of ready, qualified buyers Offers clients and customers new selling and purchasing options Increases revenue and market value Develops your own market niche Assurance that property will be sold at true market value Property is sold within a relatively short period of time Exposes the property to many potential purchasers Auctions bring people in to look at all your listings, not just the auction listing Agents can earn commissions equal to what they normally earn an a sale or listing Properties Suitable for Auction Most properties are saleable by auction. All types of residential property (e.g. town homes, condominiums, cooperative apartments and single family homes), commercial and industrial property, vacant land and even boat slips are sold at auction. Not all property, however, is suitable for auction. If a property will only appear to a narrow market, auction may not be the most effective marketing method. An Auction Self-Test: The Two Thirds Rule One method to determine if auction is the best marketing strategy is the Two Thirds Rule. This involves analysis of the market, property and seller situation. Generally, if two of the three parts (market, seller, property) lean towards auction, then auction should be offered to the seller as a sales option. MARKET (Buyers):A good auction situation is one in which the market is: A changing market A dull market Not enough of property type (unique, lake front etc.) An emerging market - new developments could kick-off a sales program, competition can take place A sellers market where there is a known high demand and a loft of competition SELLER:A good auction situation is one in which the seller: Needs immediate cash Has a partnership or marriage break-up Is moving out of state Wants to liquidate an estate Is retiring Is an auction minded seller Has already purchased another house Knows the auction will bring a fair market price Has financial problems PROPERTY:A good auction property is one that: Has alot of equity Is unique - there's enough buyer/market interest encourage competition (unique properties are difficult to appraise) Is vacant - vacant properties may encourage vandalism Is difficult to appraise Types of Auctions Essentially there are two types of auctions available to you... ABSOLUTE AUCTION: The property is sold to the highest bidder, regardless of the price Since a sale is guaranteed, buyer excitement and participation are heightened Generates maximum response from the marketplace Many sellers, including financial institutions and government agencies have begun to use this method more frequently NON ABSOLUTE AUCTION:These may include variations of the following... Minimum Bid Auction: The auctioneer will accept bids at or above a published minimum price. This minimum is always stated in the brochure and advertisements and is announced at the auction Reduced risk for seller as the sale price must be above a minimum acceptable bid Buyers know they will be able to buy at or above the minimum The seller may, however, limit interest in the auction to only those buyers willing to pay the minimum bid price, and therefore it must be low enough to act as an inducement rather than a hindrance Reserve Auction (an auction subject to confirmation): In this scenario, the high bid is reduced, in effect to an offer not a sale. A minimum bid is not published, and the seller reserves the right to accept or reject the highest bid within a specified time anywhere from immediately following the auction up to 72 hours after the auction concludes. Sellers pre-determine the price a which the property will be sold and are not obligated to confirm a sale other that a price that is entirely acceptable to them The main disadvantage of a reserve auction is that prospective buyers may not invest the time and expense of due diligence when there is no certainty they will be able to buy the property even if they are the highest bidder.