Advantages of Selling by Auctions
- The Seller knows when the property will sell versus the uncertainty of knowing.
- Having a known sale date can be financially beneficial to the Seller by knowing that ongoing expenses (i.e., utilities, taxes, insurance, and matinance) will come to an end.
- Through competitive bidding, auctions create the opportunity to sell the property for more than was expected.
- Properties sold at auction are sold with no conditions or contingencies such as a home inspection, financing, or an appraisal.
- Properties sold by auction are usually marketed more aggressively in a shorter period of time than other selling methods.
- The Seller sets the terms of sale to meet his/her needs and objectives, not the buyer’s.
- In estate situations, the auction method is conducive to helping the executor and the heirs achieve a more timely and trouble-free closure and settlement of the estate.
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.
Understanding the Buyer Market
An experienced real estate auctioneer should be familiar with the type of property you are trying to sell and the buyer market that should be targeted as potential buyers. For some properties this is easy and for others it is more difficult.
The buyer market is continuously changing. The market of potential buyers of today will not likely be the same buyer market that existed 60 days before or will exist 60 days after the auction as new buyers are entering and exiting the market all the time. Likewise, as the buyer market changes so can the value. The other factor that influences the market as well, such as the availability of financing and consumer confidence. The consumer confidence factor is a big one as it reflects ones confidence in the economy which is impacted by such things as the stock market, investments, retirement accounts, job security, the cost of living, and the housing market.
Tips in Selecting an Auctioneer
- If you’re selling real estate, select an auctioneer that is experienced in selling real estate. (Though both are doctors, you wouldn’t hire a podiatrist to do your brain surgery).
- Look at their level of experience (i.e., how long have they been in the business, how many and what type of real estate auctions have they done, and what is their success level). Any auctioneer may conduct a lot of real estate auctions, but are they getting them sold?
- Ask them detailed questions about their plans to market the property (ie. frequency, where they would advertise, and the estimated cost).
- Ask to see examples of past marketing activities (i.e., newspaper ads and brochures).
- Ask if they have a website and if they do, look at it to see how professional it is.
- Ask if they belong to the National Auctioneers Association, State Auctioneers Association, Better Business Bureau, and other organizations that may reflect their level of professionalism.
- Ask to see any written testimonials from previous clients.
- Ask for names and phone numbers of previous clients to contact for reference.
- Just ask around among your friends. It is likely that some of them may know of an auctioneer from their experience as a buyer or a seller, and get their input.
- Don’t be afraid to ask hard questions. Remember, you’re the boss and they will be working for you.
- If you’re just shopping price, remember the old adage – you get what you pay for; it’s usually as true in the auction business as it is in most others.
- Lastly, after you’ve gone through the steps above, hire the auctioneer that you are comfortable with, have confidence in, and trust.
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.
Reasons Why Many Sellers Choose the Auction Method
- 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.
- The Seller sets the sale terms and conditions. All potential buyers must bid in accordance with the terms set forth by the Seller.
- 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.
- 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.
- 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.
- 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 gov 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 Seller 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.