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What Is a Real Estate Auction?
Real Estate Auction is a method of buying and selling real estate which accelerates the
purchasing process through the medium of a Real Estate Auctioneer.
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What are the Benefits of a Real Estate Auction?
The real estate auction is definitely a win-win proposition for everyone involved. The seller disposes of
properties quickly and efficiently, thereby saying long-term carrying costs such as interest, real estate taxes
and maintenance. For the buyer this can mean a smart investment, since properties are usually purchased at
fair market value through competitive bidding. Because the auction sale is conducted in an open forum,
both motivated buyers and motivated sellers have the assurance of watching the property's true market value
emerge as the bidding process progresses. for both buyer and seller, fair market values for the property
prevail.
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Are All Properties Suitable for Auction?
Most properties, but certainly not all, are saleable by auction. Residential property (including town homes,
condominiums, cooperative apartments and single-family homes), commercial property, vacant land, -even
boat slips -are sold at auction. Some sellers try to sell unsuitable or unmarketable property through an
auction. This property that perhaps has been on the market too long, causing prospective buyers to consider
it "tainted" or perhaps the project itself was poorly constructed or planned. These types of properties don't
do well at auction and most reputable auction marketing companies would not accept them. The majority of
sound developments that can be marketed effectively do extremely well at auction. The best auction
marketing companies before accepting a real estate auction of any type property will 1) know the market and
2) analyze the property closely to ensure success for both the buyer and the seller.
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If the Property Doesn't sell at Auction is it Possible to Still Market It?
Yes. The real estate auction marketing method has exposed the property to a large segment of the buying
public. Many times a buyer who wants the property but is uncomfortable with the auction process will make
an offer after the auction date. In other instances offers to buy the property prior to the auction date are
made and accepted. Auction pressure forces buyers to act.
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Can I be Sure of Getting a Fair Price?
The only genuine measure of value of real estate is what someone else is willing to pay for it. An appraisal is
merely an informed opinion. It is not an offer to buy. The real measure of value of real estate, at any given
time, is what it will bring under competitive bidding from informed and motivated buyers.
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Don't Real Estate Auctions Depress Home Values?
Not ,at all. Real estate auctions reveal the true market value of a property because auctions are conducted in
an open forum where all bids are known, and participants are given immediate feedback on the property's
value. At auction, values settle at the level the market can bear, neither elevated nor deflated.
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Real Estate Auctions are Often thought of as a "Fire Sale" for Someone who Cannot Meet
His/Her Mortgage payments. Is this True?
Unfortunately, although most other forms of auctions, like art auctions, have a very positive image, real
estate auctions have suffered from a poor image. A majority of auctions today don't result from individuals'
repossessed properties, but rather are the result of the smart seller, who chooses the cost-effective,
accelerated method of selling a property rather than laboring for months or years to sell it. This accelerated
sale allows the seller to eliminate virtually all long-term carrying costs. These cost savings to the seller are
passed along directly to the purchaser in the form of reduced prices. It is truly a win-win situation. Sellers
can move on, and buyers can purchase properties at fair market value.
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What factors Determine the Success at an Auction?
A) The desirability of the property being sold. This includes location. condition and surrounding
properties
B) An aggressive marketing and advertising plan geared to prospective purchasers.
C) Realistic expectations on the part of the seller.
D) Selecting the type of auction that best suits the property and the seller's needs.
E) Conducting the auction in a professional manner and following up through closing.
F) Undertaking due diligence ahead of time so buyers are knowledgeable and the only issue that
remains is price.
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How are Properties Advertised for Auction?
This varies greatly depending on the type and value of the property being sold. One of the essential
underpinnings for a successful auction is a highly aggressive marketing program. Each auction has its own
powerful promotion and advertising. Auction marketing is an intensive effort and a well-times plan to create
massive interest in the properties available for sale. The advertising budget is established according to
specific properties and the type of market that's needed to be reached. That budget is then broken down into
various forms of advertising that will best target the market for that auction. The various forms of
advertising are: sale bills or brochures mailed directly to prospective purchasers and posted in public places,
newspaper advertising in local and possibly regional or national papers, ads in trade journals and magazines,
radio ads, signs posted on the property and possibly television and cable ads, and
phone solicitation. A qualified and experienced real estate auction company knows which forms of advertising are best for a
particular type of auction and its location and will facilitate everything from preparing the advertisements to
placing them in the desired forms. The aggressive advertising hits large groups of buyers that will come and
competitively bid on property thereby yielding true fair market value for a seller's holdings.
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How Long does it Take to Market the property, Have the Auction and Close the Sale?
The time frame varies depending upon the type of property auctioned. Generally, the process takes 30 to 45
days from listing to closing. The auction itself may take anywhere from five minutes on a single property to
all day on a multi-property auction.
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Under What Terms does a Property Sell at Auction and who Sets the Terms?
The seller sets the terms with the advice of the real estate auction company. Usual terms are that the high
bidder deposit earnest money (either a percentage of the purchase price or a stated set amount) and enter
into a purchase contract immediately following the auction with the balance of the purchase price due
usually within 30 days at the closing. The seller generally provides title insurance. Properties generally sell
''as is" with no warranties expressed or implied. Since the only issue left is price, due diligence is done in
advance of the sale such as preparation of information packages and inspection reports.
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Who Usually Buys at Real Estate Auctions?
Anyone can benefit from buying at a real estate auction. Many people who buy are first time home-buyers
who may otherwise be shut out of the real estate market. For them, the auction is a realization
of a dream. Empty nesters and investors also comprise a large segment of the auction buying public.
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What Happens to the Earnest Money if a Buyer Decides at a Later Date Not to Buy the
Property?
Many of the same things happen in an auction situation as in any other real estate transaction. The earnest
money deposit is forfeited if the high bidder is unable to consummate the sale regardless of the reason. If the
seller fails to close because of defective title, etc., the buyer's deposits will be refunded immediately.
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How Much Does an Auction Cost?
Auctioneers, like real estate brokers, charge a commission as a percentage of the sales price. This
commission is negotiable. In addition, the out-of-pocket expenses relating to marketing and promotional as
well as the conduct of the auction are paid by the seller.
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What are the Various Methods of Auctioning that a Seller May Choose From?
Three general types of auctions are used for real estate. The choice depends on the disposition of
the seller, not the nature of the property up for auction.
First is the Absolute Auction or Auction Without Reservation. In this type of auction the seller is legally
required to sell the property at the auction regardless of the final high bid price. The main advantage of an
absolute auction is that it generates maximum response from the marketplace. Since a sale is guaranteed
regardless of the price, buyer excitement and participation are heightened. As a result, the price of the real
estate can be maximized. That's the paradox With auctions; The lure of
low prices, or possible low prices creates the likelihood of high prices. The main disadvantage is the lack of a safety net for the seller. The real
estate is sold regardless of the owner's price requirements.
Second is the Minimum Bid Auction. Here the owners must sell at or above a minimum bid. The advantage
of this type of auction is that it creates the safety net the sellers lack in the absolute auction. This eliminates
the risk that the bid price will fall below their needs. This may limit interest in the auction only to those
buyers who are willing to pay the minimum bid price. The last point is the chief disadvantage of a minimum
bid auction, it makes it difficult to generate the proper excitement level.
Third is the Auction With Reservation. The seller reserves the right to reject the final high price bid. The
chief advantage of this type of auction is that the seller isn't obligated to accept a price that's entirely
unacceptable. The main drawback is obvious. Many prospective buyers don't want to invest the time and
expense investigating property when they have no certainty they'll get the property even if they're the high
bidder. The high bid is reduced to an offer, not a sale.
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What is a Buyer's Premium?
A buyer's premium is an additional charge to the purchaser of the property. It is usually expressed in the
form of a percentage of the high bid. The typical buyer's premium in a real estate auction is 2% to 10%.
You need to refer to the terms and conditions of the specific auction to ascertain the amount of the buyer's
premium.
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Is a Buyer's Premium Always Charges in Real Estate Auctions?
It depends on the terms negotiated with the seller.
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Why Should Real Estate Agents Look Favorably Upon Auctions?
Increasingly, real estate agents are discovering the benefits of real estate auctions. They are realizing that
auctions promote activity in an industry that thrives on activity. Agents can get involved in auctions
themselves. If an agent brings a buyer to an auction, and that buyer purchases the property, the agent can
receive a commission. To ascertain the amount and structure of any commissions to be offered, refer to the
particular terms and conditions of the auction contract. A single auction for one property might bring in
dozens or even hundreds of prospective buyers who are now in the real estate agent's market area.
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What are the Advantages to the Seller in an Auction Situation?
Buyers come prepared to buy. "Lookers" are eliminated because most often bidders must qualify through a
deposit of a certified or cashier's check. There is a sense of immediacy at an auction. Buyers feel that if all
the properties are sold before the auction ends it represents their last chance to purchase a desired property.
Sellers get maximum exposure for their properties. The auction marketing strategy differs from
conventional advertising. It is more concentrated, therefore more intense and visible. High carrying costs
are avoided. Through auctions, the seller is in control and knows, that if properly priced, his property will
sell on a certain date which is usually 30-45 days from the auction listing. By selling quickly, the seller is
able to avoid high carrying costs such as insurance, real estate taxes, security and maintenance and is also
able to benefit from the use of the monies to reinvest in other real estate or investment
opportunities elsewhere.
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What are the Advantages to the Buyer in an Auction Situation?
The buyer knows the seller is fully committed to sell. Auction agreements obligate the seller to transfer title
to the highest bidder in an absolute auction; the auction agreement obligates the seller to transfer title to the
highest bidder that meets or exceeds the reserve price in a non-absolute offering. The buyer knows he is
getting the property at a fair market price. The buyer feels comfortable with the purchase knowing that
others would have been willing to pay about the same amount for the property as he bid. The buyer has
negotiating power. The buyer sees many offerings in the same place at the same time. He is able to make
market comparisons quickly and easily.
