Real Estate Auctions - The Most Frequently Asked Questions

Q. What Is A Real Estate Auction?
A. Real Estate Auction is a method of buying and selling real estate which accelerates the purchasing process through the medium of an auctioneer.

Q. What Are the Benefits of a Real Estate Auction?
A. The Real Estate Auction is definitely a win-win proposition for everyone involved. The seller disposes of properties quickly and efficiently, thereby saving long-term carrying costs such as interest, real estate taxes and maintenance. For the buyer this can mean a smart investment, since properties are usually purchased at fair market value through competitive bidding.
Because the auction sale is conducted in an open forum, both motivated buyers and motivated sellers have assurance of watching the property's true market value emerge as the bidding process progresses. For buyer and seller, fair market value for the property prevails.

Q. Are All Properties Suitable For Auction?
A. Most properties, but certainly not all, are saleable by auction. Residential property including town homes, condominiums, cooperative apartments and single family homes, commercial property, vacant land, even boat slips-are sold at auction. The majority of sound developments that can be marketed effectively do extremely well at auction.
The best auction marketing companies, before accepting a project, will : 1) know the market and 2) analyze the property and/or development closely to ensure success for both the buyer and seller.

Q. If The Property Doesn't Sell At Auction Is It possible Still Market It?
A. Yes. The Auction Marketing Method has exposed the property to a large segment of the buying public. Many times a buyer who wants the property but is uncomfortable with the auction process will make an offer after the auction date. In other instances offers to buy the property prior to the auction date are made and accepted.

Q. Can I Be Sure Of Getting A Fair Price?
A. The only genuine measure of value of Real Estate is what someone else is willing to pay for it. An appraisal is merely an informed opinion. It is not an offer to buy. The real measure of value of real estate, at any given time, is what it will bring under competitive bidding from informed and motivated buyers.

Q. Don't Real Estate Auctions Depress Home Values?
A. Not at all. Real Estate Auctions reveal the true market value of a property because auctions are conducted in an open forum where all bids are known, and participants are given immediate feedback on the properties value. At auction, values settle at the level the market can bear, neither elevated nor deflated.

Q. Real Estate Auctions Are Often Thought Of As A "Fire Sale" For Someone Who Cannot Meet Their Mortgage Payments. Is This True?
A. Although most other forms of auctions, like art auctions, have a very positive image, real estate auctions at times, have suffered from a poor one. A majority of auctions today don't result from individuals' repossessed properties, but rather are the result the smart seller, usually a builder, fine estate home or financial institution, who chooses the cost effective, accelerated method selling a property or development rather than laboring for months or years to sell the property or unit one by one. This accelerated sale allows the seller to eliminate virtually all long-term carrying costs.
These cost saving are passed along directly to the purchaser. It is truly a win-win situation. Property owner can move on with their lives, developers can move to their next project, and buyers can purchase quality properties at fair market value.

Q. What Factors Determine The Success At An Auction?
A. The desirability of the property being sold. This includes location, condition and surrounding properties. An aggressive marketing and advertising plan are to prospective purchasers. Realistic expectations on the part of the seller. Selecting type of auction that best suits the property and seller's needs. Conduction of the auction in a professional manner and following through closing. Undertaking due diligence beforehand so buyers are knowledgeable. The only issue that remains is price.

Q. How Are Properties Advertised For Auction?
A. This varies greatly depending on the type and value of the property being sold. One essential underpinnings for a successful auction is a highly aggressive marketing program. Each auction has its own powerful promotion and advertising. Auction marketing is an intensive effort and well-timed plan to create massive interest in the properties available for sale. The advertising budget is established according to specific properties and the type of market that's needed to be reached. That budget is then broken down into various forms of advertising that will best target market for that auction.
The various forms of advertising are: sale bills or brochures mailed directly to prospective purchaser sand posted in public places, newspaper advertising in local and possibly regional or national papers, ads in trade journals and magazines, radio ads, signs posted on the property and cable television ads and phone solicitation. A qualified and experience auction company knows which forms of advertising are best for a particular type of auction and its location and will facilitate everything from preparing the advertisements to placing them in desired forms. The aggressive advertising hits large groups of buyers that will come and competitively bid on property thereby yielding true fair market value for a seller's holdings.

Q. How Long Does It Take To Market To Market The Property, Have The Auction and Close The Sale?
A. The Time frame varies depending upon the type of property auctioned. generally, the process takes 30 to 90 days from listing to closing. The auction itself may take anywhere from twenty minutes on a single property to all day on a multi-property auction.

Q. What Terms Does A Property Sell At Auction And Who Sets The Terms?
A. The seller sets the terms with the advice of the auction company. Some terms included in the auction contract are as follows:
The high bidder deposit earnest money (either a percentage of the purchase price or a stated set amount) and enter into a purchase contract immediately following the auction: the balance of the purchases price due within 30 to 60 days at the closing. The seller generally provides title insurance. Properties generally sell "As Is" with no warranties expressed of implied.
Since the only issue left is price, due diligence is done in advance of the sale such as preparation of information packages and inspection reports.

Q. What Happens To The Earnest Money If A Buyer Decides At A Later Date Not To Buy The Property?
A. Many of the same things happen in an auction situation as in any other real estate transaction. The earnest money deposit is forfeited if the higher bidder is unable to consummate the sale regardless of the reason. If the seller fails to close because of defective title, etc. The buyer's deposited will be refunded immediately.

Q. How Much Does An Auction Costs?
A. Auctioneers, like other real estate brokers, charge a commissions a percentage of the sale price. The commission is negotiable. In addition, the out-of-pocket expenses relating to the marketing and promotion as well the conduct of the auction are paid by the seller or with the "buyers premium.

Q. What Are The Various Methods Of Auctioning?
A. Essentially, there are three different types of auctions:
1) ABSOLUTE AUCTION (Or auction without Reservation). The properties sold to the highest bidder, regardless of the price. The main advantage of an absolute auction is that it generates maximum response from the market place. Since a sale is guaranteed regardless of the price, buyer excitement and participation are heightened. Because this type of auction generates as ideal response, many estate properties, financial institutions and government agencies have begun to use this method in greater frequency. Despite the fact this type of sale attracts a larger number of buyers and high bid offers, the guarantee sale at the highest bid, regardless of price, often makes a seller fell nervous and at risk, it often brings the highest bid due to the strong number of bidder this method generates.
2) MINIMUM BID - The auctioneer will accept bids at or above a disclosed price. The minimum price is always stated in the brochure, in the advertisements and is announced at the auctions. An alternative approach is to post a suggested "opening bid", but that opening bid does not commit the owner to sell at that price. An advantage to selling via the minimum bid method is that it creates a safety net for the seller that does not exist in the Absolute method. The seller's risk is limited in that the price that the property sells for will fall above a minimum acceptable level. Disadvantages to this method are that the seller limits interest in he auction to only those buyers who are willing to pay the minimum bid price and the fact that there is minimum bid makes it difficult to generate the proper excitement.
3) AUCTION WITH RESERVATION - minimum bid may or may not be posted, and the seller reserves the right to a accept or reject the highest bid within a specified time - anywhere from immediately following the auction up to 72 hours after the auction's conclusion. The owner predetermines the price at which the property will be sold. Obviously, the advantage is that the seller is not obliged to accept a price other than one that is entirely acceptable. The main drawback of such an auction is that many prospective buyers not want to invest the time and expense of investigating property when they have no certainly they will get the property even if they are the high bidder. The high bid is reduced, in effect, to an offer, not a sale
4) DUAL BID METHOD - Sealed bids are taken then the highest bid become the opening bid at an open outcry auction. the advantage of this method is that the seller can gauge the market and interest on their property and make adjustments up or down in their expectations.

Q. What is A Buyer's Premium?
A. A buyer's premium is an additional charge to the purchaser of the property. It is usually expressed in the form of a percentage the high bid. The typical buyer's premium in a real estate auction is 2% to 15%. You need to refer to the terms and conditions the specific auction to ascertain the amount of the buyer's premium. Your prospective buyer must consider the impact of the buyer's premium when deciding on the amount to bid for the property.

Q. What Are The Advantages To The Seller In An Auction Situation?
A. Buyers come prepared to buy. Lookers are eliminated because most often bidders must qualify through a deposit of certified or cashier's check.There is a sense of immediacy an auction. Buyers feel that if all the properties are sold before the auction ends it represents their last chance purchase a desired property. Sellers get maximum exposure for their properties.
The Auction Marketing strategy differs from the conventional advertising. It is more concentrated, therefore more intense and visible. High carrying cost are avoided. Through auctions, the seller is in control and knows, that if properly priced, his property will sell on a certain date which is usually within 45-60 days from the auction listing. By selling quickly, the seller is able to avoid high carrying cost such as insurance, real estate taxes, security and maintenance and is also able to benefit from the use of the Moines to reinvest in other real estate or investment opportunities elsewhere.

Q. What Are The Advantages To The Buyer In An Auction Situation?
A. The buyer knows the seller is fully committed to sell. Auction agreements obligate the seller to transfer title to the highest bidder in an absolute auction; the auction agreement obliges the seller to transfer title to the highest bidder that meets or exceeds the reserve price in a non-absolute offering. The buyer knows he is getting the property at fair market price. The buyer feels comfortable with the purchase knowing that others would have been willing to pay about the same amount for the property as the bid. The buyer sees may offerings in the same place at the same time and is able to make market comparisons quickly and easily.