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Questions About Real Estate Auctions

1. What Is A Real Estate Auction?
2. What Are the Benefits Of A Real Estate Auction?
3. Are All Properties Suitable For Auction?
4. Can I Be Sure Of Getting A Fair Price?
5. Don't Real Estate Auctions Depress Home Values?
6. Real Estate Auctions Are Often Thought Of As A "Fire Sale" For Someone Who Cannot Meet Their Mortgage Payments. Is This True?
7. What Factors Determine The Success At An Auction?
8. How Are Properties Advertised For Auction?
9. How Long Does It Take To Market The Property, Have The Auction And Close the Sale?
10. What Terms Does A Property Sell At Auction And Who Sets The Terms?
11. What Happens To The Earnest Money If A Buyer Decides At A Later Date Not To Buy The Property?
12. How Much Does An Auction Costs?
13. What Are The Various Methods Of Auctioning?
14. What Are The Advantages To The Seller In An Auction Situation?
15. What Are The Advantages To The Buyer In An Auction Situation?

1. 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. The real estate auction method is a powerful marketing alternative to price negotiated real estate sales.   Settling estates for heirs, dissolution of corporations or divorces are most effective at real estate auctions. Today's fluctuating national economy and its effect on real estate have created a challenge for developers and bankers who have large inventories of unsold property. Over a prolonged period of time, not selling marketable property can become very costly.  The speed of the auction process saves the seller money and savings are passed on to the successful bidder.

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2. What Are the Benefits Of A Real Estate Auction?

The Real Estate Auction is definitely a win-win proposition for everyone involved. Auctions are a quick way to sell houses, condos, commercial properties and acreage. Many people are turning to auctions in today's market for a fast and efficient way to sell their property since there are no contingencies.  The seller disposes of properties quickly and efficiently, thereby saving long-term carrying costs such as interest, real estate taxes and maintenances. 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.

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3. Are All Properties Suitable For Auction?

Most properties are saleable by auction. Residential property (including town homes, condominiums, cooperative apartments and single family homes), commercial property, and vacant land 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.

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4. Can I Be Sure Of Getting A Fair Price?

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.

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5. Don't Real Estate Auctions Depress Home Values?

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.

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6. Real Estate Auctions Are Often Thought Of As A "Fire Sale" For Someone Who Cannot Meet Their Mortgage Payments. Is This True?

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 of the smart seller, usually a builder, fine estate home or financial institution, who chooses the cost effective, accelerated method of 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.

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7. What Factors Determine The Success At An Auction?

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

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8. How Are Properties Advertised For Auction?

This varies greatly depending on the type and value of the property being sold. One of the  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 the market for that auction. The various forms of advertising are: sale bills or brochures mailed directly to prospective purchasers and posted in public places, newspaper advertising in local and possibly regional or national papers, ads in trade journals and magazines and signs posted on the property. R. C. Burkheimer and Associates is a qualified and experienced auction company, knowing the forms of advertising that are best for a particular type of auction and its location, and will facilitate everything from preparing the advertisements to placing them in the 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.

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9. How Long Does It Take To Market The Property, Have The Auction And Close The Sale?

The Time frame varies depending upon the type of property auctioned. Generally, the process takes 45 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.

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10. What Terms Does A Property Sell At Auction And Who Sets The Terms?

The seller sets the terms with the advice of the auction company. Usual terms are that 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.

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11. What Happens To The Earnest Money If A Buyer Decides At A Later Date Not To Buy The Property?

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.

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12. How Much Does An Auction Costs?

Auctioneers, like other real estate brokers, charge a commission as a percentage of the sale price. 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.

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13. What Are The Various Methods Of Auctioning?

Essentially, there are three different types of auctions:

ABSOLUTE AUCTION - (Or auction without Reservation). The property is 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 an ideal response, many estate properties, financial institutions and government agencies have begun to use this method in greater frequency.

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MINIMUM BID AUCTION - 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.

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AUCTION WITH RESERVATION - A 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 do not want to invest the time and expense of investigating a property when they have no certainly they will get the property even if they are the high bidder. This type of auction does not attract the excitement of buyers and investors like the absolute auction. Many serious buyers are not interested in participating because the seller has the right to say "no" to a sale.

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14. What Are The Advantages To The Seller In An Auction Situation?

Buyers come prepared to buy. "Lookers" are eliminated because most often bidders must qualify through a deposit of a certified or cashier's check. There is a sense of immediacy at an auction. Buyers feel that if all the properties are sold before the auction ends it represents their last chance to 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 and maintenance.

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15. What Are The Advantages To The Buyer In An Auction Situation?

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 he bid. The buyer sees may offerings in the same place at the same time. He is able to make market comparisons quickly and easily.

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