How is a real estate auction different from a traditional real estate sale?

The definition of a real estate auction is: “The firm and time-defined sale of real property by competitive bid,” in traditional realty sales the buyer and seller have no real idea of when the closing will occur, nor is there any locked in firm price since even after the contract is signed the price is still open for negotiations that comes out of the property inspection. Also, despite the signed contract the deal is almost always subject to the acquisition of a mortgage by the buyer. The auction method is the only real estate sales process that establishes a firm time defined date for the sale and the closing; a firm and irrevocable price for the sold property; and a non-contingent sale.

 

Is it true that only real estate foreclosures are sold using the auction method?

 This has been a myth circulating from town to town for decades and is definitely not the case. The auction method of selling real estate has been chosen over traditional methods for centuries, the most famous of which was the sale, via auction, of the entire Roman Empire. The Empire that sprawled from Syria on the east border to the Danube on the north border and Britain on the west border was placed on the auction block. This largest auction sale of all time was brought about by political upheaval with the praetorians issuing a proclamation for an appointed time to begin the sale which eventuated in the dismantling of the Roman Empire.

Bringing this back to a more meaningful time for us shows realty auctions chosen over traditional methods because it is a no nonsense method of selling real property that results in cash bidders not tire kickers, expeditious closings of all types of property, non mortgage contingent sales and the best possible market price for the property.

 

Doesn’t the auction sale mean that I give away my property without receiving a fair market value?

Again this is not true. Actually the word auction is derived from the latin root “auctus” which means to increase. In distinction to traditional methods of realty sales in which prices usually go from higher to lower the auction method goes in the direct opposite starting off lower and, through competitive bidding in the marketplace, ending up the higher.

 

How does the real estate auction work?

When an owner retains the services of an auction marketing company the auction company strips away the mysteries surrounding the entire auction process. Basically it boils down to three segments: 1) listing, 2) selling, 3) closing.

1. LISTING: First it should be understood that the listing for an auction sale of property is exclusive with in the auctioneer/broker and that this period runs from the time of the signing of the listing agreement thru 60 days after the auction sale has been completed. During the listing period, the seller provides the auctioneer/broker with all pertinent factual information to permit the auctioneer to start creating a marketing program that will entice buyers to come to the auction. Documents such as deeds, latest tax assessments, outstanding mortgages and liens on the property, certificates of occupancy, surveys, leases, rental agreements, and other related documents necessary to present the clear legal picture of the property offered for sale must be provided to the auctioneer. The next step would be for the owner to provide any and all history attached to the ownership of the property. This is the most necessary when attempting to sell a land marked property. Once all documents are received by the auctioneer a series of photos of the property will be taken in order to create the actual marketing materials for the sale and to provide for the internet presence. Running simultaneously with the photo session will be necessary clean-ups by the owner to provide good “curb appeal” and “interior selling presence” for the property being sold. The better it looks the higher the selling price.

2. SELLING: The second segment or the selling period starts with placing auction sale signs on the property, fact sheets and photos on the Internet, and the creation and mailing of color advertising materials to the buying public. During this period, the advertising will be placed in all necessary media to market to the appropriate target audience. Two previews of the property will be conducted during this segment, otherwise knows as “open houses”, and these previews will be conducted for approximately two hours each. Those are the only previews and the only times during which a potential buyer will have an opportunity to examine the property with the exception of auction day itself. You must remember that in distinction to the traditional Realtor that will show your property multiple times to a multitude of the “tire kickers,” the auctioneer/broker is only interested in a pre-qualified buyer who is ready willing and able to purchase. The “terms and conditions” for bidding and purchasing the property are also linked to the property during this period and potential buyers can pre-register on-line for the auction and will understand their irrevocable obligation when coming to bid on the property at the auction. Extensive phone marketing also occurs during this segment to potential buyers known to have an interest in properties that are of similar nature. The property owner is invited to call and otherwise contact any potential buyer they might know to come to one of the two open houses. Throughout this period the auction company is monitoring the progress of all scheduled activities to make certain that everything is done in a timely fashion and all elements are in place for the final portion of the selling period or the “auction day and sale”. The day of the auction, the auction team arrives approximately three hours before the sale and sets up their registration, clerking, and bookkeeping stations and then register any potential buyers, show the property one last time, and begin the auction promptly at 1:00PM. The auction itself takes only a few minutes and when the bidding is completed two bidders are asked to come back to the table and see the closing clerk. The two bidders are the winning bidder and the successful under bidder (the under bidder is the bidder that bid the next highest price at the auction).The contract for sale and purchase of real property is then signed by the winning bidder and the monies received from the under bidder are retained until an additional 10% of the winning bid is received in the auctioneers escrow account no later than 24 hours after the auction. As soon as the 10% is received, the under bidder’s check for the bidders card is returned and they are no longer held liable for their under bid.

3. CLOSING: The final period in the auction process is closing. This period also goes according to a pre-set schedule of events to make certain that all parties are on the same page and moving towards an expeditious closing and transfer of property to the buyer at the auction. This closing usually occurs within 30 days of the auction but in some instances can take as long as 45 days due to achieving a clear title. Since the sale of the property at auction is not contingent upon the buyer acquiring a mortgage or subject to inspection of the property the closing date is not compromised by these usual road blocks in traditional real estate sales. The auction company makes certain that all necessary property insurances are maintained until closing and that the property is kept in the same condition as the day it was sold at auction. There is no final walk thru for the buyer and the buyer only has access to the property after a successful closing ha been held and legal transfer of property has been completed.

What price can I expect to receive for my home?

The realities are that this is a complex area and price is affected by many variables in the market place. The key to achieving the best price for your property is to have a realistic selling price in place at the time of the sale event. Every home sells if it is priced correctly for the marketplace. Of course, we need to compare apples to apples, and despite the many enhancing features added to the property by the owner, that may not positively affect the buying price for the property. These owner improvements might not entice the buyer in increase their bid. The one thing you can depend on is that the highest price achieved at the auction will be the best price you will receive for the property.

 

Once the Auction is over do I have to accept the highest bid offered at the Auction?

There are two types of sales that are conducted using the auction method. One is the “Absolute Auction” and the other is “Subject to Owners Confirmation” The Absolute Auction is a rare event and means that what ever price is the highest bid at the auction, that it is the winning bid and the property is sold at that price. When absolute auctions are conducted very large numbers of people show up and fierce, competitive bidding usually ensues. Although this type of auction brings a large audience and fierce competitive bidding, the price achieved may not be the desired price by the owner and may be quite disappointing.

 The most popular form of auction is the one in which the final high bid is “Subject to Owner Confirmation”

In this type of sale the owners’ expectations for a minimum price are already established via the listing agreement and if that price is achieved the property is sold and the owner is bound by the listing contract to sell the property to the successful bidder at the auction. However, if the minimum price is not met at the auction, the highest bid achieved will be brought to the owner that moment and they do have an option to accept the current bid offered.

 

How much does the auction cost me?

This is the most enticing part of the auction method of real estate sales. There is 0% commission charged to the seller of the property. The seller is responsible for the marketing /advertising for the property.

 

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