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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