Selling Real Estate at Auction
Simply put, the auction method is an alternative method for marketing
and selling property. Based on the amount of property sold via the
conventional listing route versus the auction route, the auction method
is certainly not a competitor to the conventional listing method. The
auction method gives both, realtors and sellers, another option to
consider when trying to select the marketing and sales method that is
best suited to meeting the Seller’s objectives.
Selling real estate at auction has always been a common method of
selling property in rural areas. In recent years however, the auction
method in selling real estate has become increasingly popular in
metropolitan areas. We attribute this to 4 primary factors: 1) as more
real estate is being sold at auction, the public is becoming more
comfortable with the auction method and accepting of it as a viable
option of selling and buying real estate, 2) there is a greater
awareness among sellers today of the time value of money, 3) we have
become an “instant gratification” society which expects desired results
in a much shorter time frame, and 4) the auction method offers some
advantages that many sellers find appealing.
Selling Personal Property
at Auction
The majority of our personal property auctions are for clients who are
settling estates, downsizing, relocating, or liquidating their
businesses. We do not have an auction house. All of our auctions are
conducted at an onsite location. While some auctions have just a single
seller, we have also conducted auctions involving multiple sellers with
items consigned to a single auction.
At our auctions we offer computerized clerking whereby all sellers are
provided a detailed report of items sold and the sale price of
individual items sold. To enhance the buyers’ ability to buy, we also
accept major credit cards. At settlement we provide the seller with a
detailed Auction Report Summary. This is a report of Auctioneer
accountability, in that it provides the seller with a detailed
accounting of all sales income, expenses incurred, and marketing
activities implemented by the Auctioneer.
Perception vs. Reality
From our training sessions and meeting with prospective clients, we have
found that many people believe auctions are used primarily as a sale
method of last resort and property sold at auction brings a fraction of
its true value. Conversely, many of our clients have chosen the
auction method as their method of first resort and realized prices that
met or exceeded their expectations. Much of the success of an auction
depends on the characteristics and desirability of the property and its
appeal to the buying public, how the auction is structured, and how the
property is marketed.
Types of Auctions
There are two types of auctions – Absolute and Reserve.
An Absolute Auction is one in which the property is sold to the
highest bidder regardless of price. The advantage of an Absolute
auction is that bidders know the property is going to sell without
reservation of price. Thus it tends to generate more interest among
potential buyers. In an Absolute auction the Seller cannot bid on the
property nor can anyone bid on the Seller’s behalf. If an auction is
not advertised as Absolute, you should presume that it is a Reserve
auction
A Reserve Auction is one in which the Seller can put a minimum,
or reserve price, on the property. The advantage of the Reserve auction
is that if the property doesn’t bring what the Seller needs, it does not
have to be sold. The disadvantage of a Reserve auction is that it is
usually not as effective in generating interest and attendance among
potential buyers. In a Reserve auction the Seller may: 1) set the
minimum amount, 2) have the sale price subject to confirmation, 3)
accept or reject the final bid, or 4) designate someone to bid on the
Seller’s behalf, with proper disclosure.
What is a Buyer’s Premium?
A buyer’s premium is a percentage added to the bid to determine the
final selling price of the property. For example, if there is a 10%
buyer’s premium and the final bid is $100,000, the final selling price
is $110,000. The buyer’s premium is paid to the seller and is in turn
used to assist the seller in paying the costs of the auction. These
costs usually include, but are not limited to, advertising, commissions,
and other costs that may be incurred to bring the property to auction.
Most of our real estate auctions include a buyer’s premium. However,
most of our personal property auctions do not. When we use a buyer’s
premium it is disclosed in the advertising and in the discussion of
terms and conditions prior to the auction.
Inspection of Property
Real Estate:
For nearly all real estate auctions there are one or two prescheduled
“open houses” several days prior to the auction. If you are not able to
attend the “open house” we will try to arrange a separate time for you
to view the property.
In nearly all real estate auctions, the property is sold “as is” with no
condition or contingency. That includes inspections such as home,
termites, radon, lead-based paint, etc. We want potential buyers to be
as knowledgeable about the property as they care to be. Thus, potential
buyers are welcome to get any kind of inspection they want but it should
be done prior to the auction. The inspection cannot be used as a
negotiating item with the Seller, and the potential buyer must pay for
the inspection.
Personal Property:
The public is welcome to inspect the personal property prior to the
auction. The inspection times scheduled vary depending on the type and
amount of property being auctioned. In most cases the inspection time
is indicated in the advertising. If not, feel free to call the
Auctioneer to determine when the pre-auction inspection is scheduled.
Advantages of the Auction
Method
1)
The
Seller determines the sale date.
Whether desiring to minimize carrying costs (insurance, taxes,
utilities, mortgage payments), buy another property, or pursue a more
efficient use of the funds from the asset, the Seller can set the time
frame that will best accomplish the desired objectives.
2)
The
Seller sets the sale terms and conditions.
All potential buyers must bid in accordance with the terms set forth by
the Seller.
3)
Sales with no conditions, no contingencies.
At auction, properties are usually sold “as is” with no conditions or
contingencies to the contract, such as an inspection, appraisal,
financing, the sale of another property, etc. While potential buyers
are welcome to get any inspection(s) they desire prior to the auction,
they are not a matter of contract negotiation.
4)
Greater assurance that the sale will close.
The terms of most auctions require the successful bidder to make a down
payment of 10% to 15% of the sale price with the stipulation that if
they do not close, the bidder will forfeit their down payment. This
condition helps to generate the serious bidders and discourages buyers
from defaulting on the contract.
5)
Aggressive and intense marketing period.
Most properties are aggressively marketed 2-3 weeks prior to the
auction. This puts the property at the forefront of other properties on
the market and generates a sense of urgency and excitement among
potential buyers.
6)
Increased price potential.
The competitive bidding process will not only produce the highest price
among all potential buyers on the day of the sale, but for a good, high
demand property, it can often yield a sales price above what would
normally be expected.
What is
the Process if I Want to Auction My Property?
-
Contact one of the
auctioneers to discuss your objectives and the basics of how the
auction method works.
-
If it is a viable
candidate for auction, the Auctioneer will suggest setting up a time
to inspect the property.
-
If determined to be
a good candidate for auction, the Auctioneer will prepare a marketing
program, proposed contract, and verbal or written proposal.
-
The Auctioneer will
go over the marketing program prior to signing any contract to explain
the program and make any adjustments at that time. We have found it
beneficial to present to the sellers a detailed advertising program
prior to signing the contract. This enables the Seller to have a
complete understanding of how the property is going to be marketed.
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