Is an auction the right thing for you?
Across the country thousands of homes are being auctioned off every month. Often these are properties that are bank owned, distressed properties, tax foreclosures, or in some cases owned by homeowners or investors who need to sell quickly. Watching as these homes receive multiple bids from cash buyers can make even the most jaded seller wonder – Is an auction the right thing for me?
The answer is – It depends. Typically auctions are best suited to sellers who are willing to accept less than market value for their home in order to sell quickly. But for sellers that do not need to sell fast they still do have some distinct advantages. For instance here are five reasons why many sellers prefer auctions:
- An Auction is an Event - Like an open house it’s something that can be marketed easily.
- Urgency for Buyers - The auction date creates a deadline for buyers to take action.
- Seller Control - By setting a reserve price, a seller can remain in complete control.
- Few or No Contingencies - Most auctions sales contain few or no conditions of sale.
- Fast Closing - Auction sales are typically closed within 30-45 days.
A real estate auction is very similar to typical auction with a few key differences. It begins with a homeowner or seller who would like to sell quickly and, in exchange, is willing to accept a discounted price. Next, the real estate is reviewed to determine market value. This is often done by using a standard appraisal, the county tax value, or a competitive market analysis. Once the market value has been established, the seller and the auctioneer agree on a price that both believe will attract a buyer. Finally the seller and auctioneer agree on the kind of auction that best fits the seller’s needs. There are many different types and style of auctions used to sell real estate.
Various Real Estate Auction Types:
Absolute Auction - This is an auction where the property is sold to the highest qualified bidder. This type of auction means the property will be sold to the highest bidder regardless of price. In other words, if only one person bids a $100 for the home, that’s the price the home sells for.
Auction with Reserve - This is an auction in which the seller or his agent reserves the right to accept or decline any and all bids. For instance, if you have set a reserve price of $200,000 for your home and the highest bid was $75,000, you have the option to reject the offer. A minimum acceptable price may or may not be disclosed to potential bidders prior to the auction.
Ballroom Auction - When one or more properties are being sold by auction, often they will be pooled together and the actual auction itself will be conducted in a meeting room facility, hotel convention facility, or other indoor location.
Bidder’s Choice - With this approach the successful high bidder wins the right to choose a property, or properties, from a group of similar or like-kind properties. This type of bidding is very popular when selling building lots, timeshares and condominiums.
Caravan Auctions - This is a series of on-site auctions advertised through a common promotional campaign that is located very close together. The bidders and auctioneer will actually travel from location-to-location and call each auction while all of the participants are present at each property.
Foreclosure Sale - The foreclosure sale is when a lender cannot collect on a mortgage or a loan and has asked the court to allow, or order, the sale. This type of sale is an excellent opportunity for investors to secure property since the seller’s main interest is to recover as much of amount of the loan as possible.
Minimum Bid Auction - This is an auction in which the auctioneer will accept bids at or above a disclosed price. The minimum price is always stated in the brochure, in advertisements, and is announced at the auctions.
Sealed Bid - In this type of auction, confidential bids are submitted to be opened at a predetermined place and time. This is not a true auction in that it does not allow for reaction from the competitive market place. In some cases this type of auction will work to the benefit of the seller as it forces a bidder to place their best and final offer.
To find a professional real estate auctioneer in your area, look for one who holds the Accredited Auctioneer, Real Estate (AARE) designation. You can find a complete list at the Auction Marketing Institute.