What are the different types of real estate auctions available in the local marketplace? Well, essentially there are three types of auctions:
ABSOLUTE AUCTION (or auction without reserve)
The property is sold to the highest bidder, regardless of the price. Since a sale is guaranteed, buyer excitement and participation are heightened. This type of auction typically generates maximum response from the market place. Many sellers, including financial institutions and government agencies have begun to use this method more and more frequently.
MINIMUM BID AUCTION
The auctioneer will accept bids at or above a published minimum price. This minimum price is always stated in the brochure and advertisements and is announced at the auction. There is reduced risk for seller as the sales price must be above a minimum acceptable level. The buyers know they will be able to buy at or above the minimum. The seller may, however, limit interest in the auction to only those buyers willing to pay the minimum bid price, so therefore it must be low enough to act as an inducement rather than a hindrance.
RESERVE AUCTION ( an auction subject to confirmation)
In this scenario, the high bid is reduced, in effect to an offer not a sale. A minimum bid is not published, and the seller reserves the right to accept or reject the highest bid within a specified time -- anywhere from immediately following the auction up to 72 hours after the auction concludes. Sellers predetermine the price at which the property will be sold and are not obligated to confirm a sale other than at a price that is entirely acceptable to them. The main disadvantage of a Reserve Auction is that prospective buyers may not invest the time and expense of due diligence when there is no certainty they will be able to buy the property even if they are the highest bidder.
What Factors Impact the Success of an Auction?
A. The seller must have realistic expectations, including a fair sales price, terms and timing.
B. The desirability of the property. This includes location, conditions, plus the value of surrounding properties.
C. Since a variety of auction methods are available, carefully choose the auction type that best suits the property and the seller's needs.
D. A well planned, aggressive marketing/advertising campaign targeted to prospective purchasers is critical to an auction's success.
E. Using a recognized real estate auction company or a REALTOR® auctioneer to ensure the auction is conducted in a professional manner and followed-up through closing.
F. Making sure that due diligence information is provided to prospective buyers AHEAD OF TIME.
G. Preparing the property for sale so it is presented to prospects in its best condition. (i.e.., title insurance, clean-up, financing, etc...)
The Two-Thirds Rule
Not all properties should be sold at auction, but certain properties and situations will benefit greatly. A dependable way to determine whether a property lends itself to auction is this: If two of the three main components of a transaction (market, the seller and the property) lean favorably toward auction, then it should be considered as a sales option.
CLICK HERE for a checklist by e-mail autoresponder to help figure out if the Two-Thirds Rule applies to the property you have in mind.
|
RSS Blog Feed