Real Estate Auction Q & A
What makes a property right for the auction method?
- It must be desirable so there will be more than one person bidding on it.
- There needs to be some equity in the property.
- The seller must have a reasonable expectation of the selling price.
What makes a property desirable?
- Scarcity: If there are not many properties like the seller's property on the market, that would be a good one for an auction.
- Price: On the other hand, if the property is just one of many similar properties on the market, then it would take a lower price to create the desirability necessary to make an auction work.
What are some examples of desirable properties?
Lake homes, building lots, recreational properties, lower-priced homes, homes with acreage, and multi-family dwellings.
Why would anyone lower their price below the price of other comparable properties on the market?
These are the traditional fire-sale properties. The seller may also have some other unrelated pressure to sell.
Why is equity necessary to make an auction work?
Just as in a traditional sale, there must be enough equity to pay off all of the encumbrances and still have enough money left over to pay the sales commission, or the seller likely won't want to sell.
What is a reasonable expectation of a selling price?
A reasonable expectation of a selling price is an amount that is likely to be bid at the auction. That amount is decided before the auction and is put into the auction contract. It is called a reserve price or minimum price.
What is the effect of putting a "reserve amount" or "minimum bid" into the auction contract?
The seller will not be required to sell if that reserve amount or minimum bid is not met.
Will an auction likely result in a higher sales price than a traditional listing?
An auction is a true representation of the value of a property at that time and place. Sometimes a property sells for more than its true value, but usually the highest bid is a fair representation of a property's true value.
What happens if the property doesn't sell at the auction?
We then list the property with a new traditional listing agreement, or the Realtor who retained us does so.
How are commissions usually paid?
Commissions are negotiable, but they are usually paid by the buyer and divided among the auctioneer, the listing Realtor, and the buyer's Realtor.
Who pays for the advertising of the auction?
The seller usually pays for the advertising, but if the property sells at the auction and closes, AAA Auction may reimburse the seller for all the advertising costs out of its portion of the sales commission.
If a seller has a reasonable sales price expectation and has a desirable property with equity, why should he or she consider an auction?
- The buyer usually pays the sales commission.
- The seller is not required to sell if the bid is too low.
- The true value of the property is determined by competitive bidding.
- The seller doesn't have to worry about accepting a bid that turns out to be too low.
- Auction sales are quicker than traditional sales, thereby avoiding carrying costs.
- Auction sales are non-contingent, so closings are fast.
- Auction sales are AS-IS.
- Auctions take the seller out of the negotiation process.
- Buyers come pre-approved, because they are required to pay a sizable, non-refundable down payment on the day of the auction.