Real Estate Auctions

Real estate auctions are no longer just for vacant land, foreclosed property, or property seized by the government. Today many property owners choose to auction their homes rather than selling them in the more traditional method.  An auction can offer a more economical and expedited approach to selling one’s house especially when there is a large amount of equity involved. Homes that are unique and/or difficult to appraise are also good qualifiers for using the auction option.

Real estate auctions are growing in popularity and are now frequently considered the first choice for buying or selling a property and not the last resort as it was in the past. The National Auctioneers Association (NAA) reported a 46.6 percent increase in real estate auctions and $16.9 billion in sales in 2007. They predict that by 2010, auctions will account for 30 % of all real estate sales in the United States.

The Market Value

In conventional real estate marketing, a real estate professional estimates the value of a property by reviewing recent property sales in the local area. The professional bases the approximate value on recent sales with comparable square footage, number of bedrooms, number of bathrooms, as well as any special amenities.

A real estate auction is an excellent way of determining the true market value of a piece of property. Competitive bidding allows buyers to bid whatever they are willing to pay and in the competitive bidding environment, the price is usually driven up.

There are many factors that contribute to whether or not an auction will be successful and much of the outcome depends on the seller and the real estate auction company. The seller must have a realistic expectation regarding a fair sale price, the terms and the timing of the auction. He or she must also be willing to disclose any and all work that needs to be done to the property as well as any known defects and this information must be forthcoming ahead of time.

All kinds of properties have the potential of selling at an auction but each property needs to be evaluated to determine what the best marketing strategy would be for that piece of property. Since, in most states, the real estate auction company must use an auctioneer who is also a licensed real estate broker; they can usually assist the seller with analyzing his or her property and his or her specific situation to insure a successful sale. 

Cost Benefits

With the traditional method of marketing real estate, a seller signs a contract with a real estate broker and agrees to put the home on the market for 90-120 days. The seller continues to pay the mortgage, taxes, and homeowners insurance. The seller also agrees to maintain the property, pay utility bills, and allow the broker or agent to show the property to prospective buyers.

On the other hand, a real estate auction guarantees the sale of a property 95% of the time. When a seller decides to auction his or her property, the seller and the auction professionals agree on a date when the live auction will take place. This is usually 30-45 days in the future. Since the property is only available for a specified period of time, it creates a sense of urgency and encourages bidders to seize that moment before it is gone forever.

Eliminating the Guess Work

Auctioned properties are sold "as is" and "where is" with no contractual contingencies. This is why the seller must disclose the exact condition or the property.

If a potential qualified buyer would like to have an inspection or an appraisal of the property, this can be arranged prior to the date of the auction. Potential buyers are required to obtain financing and have evidence of approval before they can be registered to bid. They are also required to provide cash earnest money or a down payment in the amount of 10-15% of the amount of the winning bid. Auctions attract only the serious buyers prepared to make an immediate purchase.

The buyer and seller pay respective closing costs and it is usually the buyer who pays the auction buyer’s premium, which is an average of 10%. Any commission to the auction company is the responsibility of the seller. However, since most property usually sells sooner via an auction than it does in a traditional real estate transaction, the seller is not burdened with the ongoing costs of continuing to own the property, which could be months.

Added Benefits for Everyone

Most sellers of property at a real estate auction are highly motivated and appreciate the advantages of liquidating the property at a fair price quickly.  The seller rests at ease knowing that there is no longer a need to be concerned with a lengthy negotiation process and the seller typically knows what the selling price is within 9-12 minutes. The transaction usually closes in as few as two days for a cash buyer and can take up to 45 days if there is financing involved.

The auction staff will also handle all inquiries about the property that is generated from the advertising and promotion of the auction in the same manner that a real estate broker would with the conventional marketing method.

Prospective buyers in an open public auction acknowledge the benefits of having the same opportunity as all bidders to buy the property and are conscious of the fact that they have the power to determine the purchase price. The buyers no longer have to deal with the possibility that the seller will reject their offers. They also know what the terms of the sale are in advance.

Types of Real Estate Auctions

Absolute Auction – Property is sold to the highest bidder. This increases the excitement among the potential buyers because a sale is guaranteed. Someone will walk away as the new owner. This method offers the best overall results although there is no question that it can be a real nail biter for the seller.

Minimum Bid Auction – The auctioneer will only accept bids that are at or above the minimum amount published during the marketing campaign. Caution must be exercised in determining the correct minimum amount to be set. A careful and accurate study of comparable values in the area within the current market is essential. If the minimum is set too high – there will be no sale. This method provides the least risk for the seller but there is a higher chance that the seller could still own the property when all is said and done.

Reserve Auction – This means that if the high bid, or last bid executed, does not reach the reserve price set by the seller then that bid becomes an offer which can later be negotiated. It is not a sale. Reserves are not published in any of the advertising. With a reserve auction, the seller has the right to accept or reject the high bid during a period of approximately 48 to 72 hours after the auction. The excitement generated by this type of auction is usually somewhat low. Many potential buyers do not want to waste their time researching a property when they aren’t even sure they will be players. Attaining the true market value on a property auctioned in this manner is somewhat unlikely.

Marketing Campaign

The real estate auction company will develop a very intense advertising campaign, which will have a huge impact on the success of the auction by exposing the property to a large segment of the buying public. Depending on the advertising budget, there are many avenues from which to choose, but it is important to note that the use of all of them provides the seller with the biggest chance of reaching his or her goal – a sale.

TV advertising is absolutely the most effective but it is also the most expensive. It will most likely give the seller the best results but it can be a drain on the budget thereby limiting the monetary resources still available for a well-balanced campaign across a number of other marketing vehicles.

If a seller’s budget does not allow for TV advertising then a highly effective campaign across the other available venues is essential. They include print advertising in national, local and maybe even international newspapers and magazines -- depending on the value of the property being sold; direct mail brochures to targeted audiences such as real estate brokers; custom signs placed in effective locations to generate excitement; and radio advertisements.

Radio ads can be very effective especially for important business people who do not have time to do a lot of reading. Placing radio ads during morning and afternoon drive times, although more expensive than other time slots, is definitely the most successful.

A real estate auction company may also have their own Internet sites that can further enhance a seller’s ability to reach as many prospective buyers as possible.

In addition to just advertising that a particular piece of property is being auctioned, it is also necessary to give interested parties all of the pertinent information available on the property. Hopefully a number of people will read the details and say, “This place is definitely what I’ve been looking for.”

This is done with a PIP (Property Information Packet). It includes a detailed description of the property, photographs, auction terms of the sale, purchase and sale agreement, available financing, title conveyance approval, home inspection information and other items of interest.

The auction format itself will further motivate these buyers through the excitement that is generated by the “this is it” environment. At the actual auction for the property, which only lasts for a few minutes, all interested parties must make a decision and they must make it right away. That’s as exciting as it gets.

                                                           Written by Anne Benedetto, Auction House Talk,
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