The Auction Advantage
Real Estate
Auction As Low As Zero Cost To
You
The
Auction Advantage
Why should you consider the
auction marketing method?
The following are a few documented advantages commonly cited by those
in the industry:
For
Sellers:
- Buyers come prepared to buy. Lookers are eliminated because bidders
must pre-qualify themselves through a non-refundable deposit of
10% to 20% if they are successful bidders.
- The auction creates a sense of urgency and brings interested parties
to a point of decision.
- Auctions create maximum exposure for the property. Auctions are a
concentrated effort, so the exposure and efforts are more intense
and visible.
- The seller avoids high carrying and holding costs.
- Auctions create and increase buyer competition for property.
- The seller can set a specific date, time, and location for sale of
the property.
- Seller controls all of the sale conditions and terms.
For
Buyers:
- Buyers know the seller is committed to sell.
- The buyer knows he is getting the property at a fair market price
set by public bidding.
- The buyer has full control of what he wants to bid to own the
property.
- Auctions reduce the potential negotiating time for the buyer.
Auction
Formats for Real Estate
Absolute Auction
The real estate sells to the high
bidder. The seller does not reserve the right to decline the final bid
received by the auctioneer. Absolute auctions generate maximum buyer
response. However, it is important to recognize the market risk
potential for the seller.
Auction With
Reserve
The seller reserves the right
to accept or decline the final bid. Auctions with reservation may or
may not have an advertised minimum bid. The advantage to the seller is
that he or she is not obliged to accept any price other than what he
or she and the auctioneer have established as a reserve price for the
property. The drawback is that some buyers may not want to invest the
money and time in researching a property sale that is subject to
seller approval of the final bid.
Minimum Bid Auction
Bids are accepted at or above
the disclosed advertised minimum. The advantage to the seller is that
it does create a safety net that does not exist in the absolute
auction. At the same time, if the minimum bid is set at the proper
level, considerable buyer excitement can enter the marketplace. The
disadvantage is that the seller may be limited to only those buyers
interested at the disclosed minimum bid. The minimum bid auction
format has been very successful in marketing of real estate previously
listed through traditional sales methods.
The
Auction Process
Marketing
An aggressive marketing program is
critical to an auction�s success. Massive interest must be created
in the property. The advertising budget is set according to specific
properties and the type of market that needs to be reached. The budget
is then broken down into various forms of advertising that will best
reach the market for the individual property. Direct mail, newspapers,
trade journals, radio, property signs, telephone solicitation,
property brochures, and possibly TV are all avenues available.
Depending upon the type of
property, location, value, and the size of the market area, the
advertising budget can run from 1/2 percent to 5 percent of the
estimated value.
The auction staff will devote many
days of prospecting the market to identify potential buyers and
discuss their interest in the property to be offered.
Time Frame
The allowed time for a real
estate auction varies depending on the type of property, but generally
it is 60-75 days from the initial planning stage to closing. The
auction itself may take from just a few minutes for single property to
several hours for a multi-parcel auction.
Terms of an Auction
The seller sets the terms and
conditions of the auction with advice of the auctioneer. The terms
must be in balance...keeping in mind that there are two parties in the
transaction. There should be no contingency clauses on auction day.
All possible concerns and questions of the buyers should have been
addressed prior to the sale day. Usual terms are that the high
bidder(s) deposits with the auctioneer an advertised earnest money
deposit (% of the purchase price) and enters into a pre-approved
contract immediately following the auction. The balance is paid in
30-60 days with delivery of good title from the seller. Items of
consideration in sales terms:
- Percent down
- Leases
- Reservation of minerals
- Property information to be provided
- Legal descriptions
- Cash vs. contract sale
- Closing date to be advertised
- Abstract vs. title insurance
- Real estate taxes
- Maps
- Possession
- Survey
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