Selling Real Estate at Auction
Simply put, the auction method is an alternative method for marketing and selling property.
Selling real estate at auction has always been a common method of selling property in rural areas. In recent years however, the auction method in selling real estate has become increasingly popular in metropolitan areas.
Advantages of choosing an Auction
- The Seller knows when the property will sell.
- Having a known sale date can be financially beneficial to the Seller.
- Through competitive bidding, auctions create the opportunity to sell the property for more than was expected.
- Properties sold at auction are sold with no conditions or contingencies.
- Properties sold by auction are usually marketed more aggressively in a shorter period.
- The Seller sets the terms of sale to meet his/her needs and objectives, not the buyer’s.
- In estate situations, the auction method is more timely and trouble-free closure with settlement of the estate.
- Billy Frank will be familiar with the type of property you are trying to sell and the buyers market that should be targeted as potential buyers.
- Increased price potential. The competitive bidding process will not only produce the highest price, but for a good, high demand property, it can often yield a sales price above what would normally be expected.
Perception vs. Reality
From our training sessions and meeting with prospective clients, we have found that many people believe auctions are used primarily as a sale method of last resort and property sold at auction brings a fraction of its true value. Conversely, many of our clients have chosen the auction method as their method of first resort and realized prices that met or exceeded their expectations. Much of the success of an auction depends on the characteristics and desirability of the property and its appeal to the buying public, how the auction is structured, and how the property is marketed.
There are two types of auctions – Absolute and Reserve.
An Absolute Auction is one in which the property is sold to the highest bidder regardless of price. The advantage of an Absolute auction is that bidders know the property is going to sell without reservation of price. Thus it tends to generate more interest among potential buyers. In an Absolute auction the Seller cannot bid on the property nor can anyone bid on the Seller’s behalf. If an auction is not advertised as Absolute, you should presume that it is a Reserve auction
A Reserve Auction is one in which the Seller can put a minimum, or reserve price, on the property. The advantage of the Reserve auction is that if the property doesn’t bring what the Seller needs, it does not have to be sold. The disadvantage of a Reserve auction is that it is usually not as effective in generating interest and attendance among potential buyers. In a Reserve auction the Seller may: 1) set the minimum amount, 2) have the sale price subject to confirmation, 3) accept or reject the final bid, or 4) designate someone to bid on the Seller’s behalf, with proper disclosure.
What is a Buyer’s Premium?
A buyer’s premium is a percentage added to the bid to determine the final selling price of the property. For example, if there is a 10% buyer’s premium and the final bid is $100,000, the final selling price is $110,000. The buyer’s premium is paid to the seller and is in turn used to assist the seller in paying the costs of the auction. These costs usually include, but are not limited to, advertising, commissions, and other costs that may be incurred to bring the property to auction.
Most of our real estate auctions include a buyer’s premium. However, most of our personal property auctions do not. When we use a buyer’s premium it is disclosed in the advertising and in the discussion of terms and conditions prior to the auction.
Inspection of Property
Real Estate: For nearly all real estate auctions there are one or two prior scheduled “open houses” several days prior to the auction. If you are not able to attend the “open house” we will try to arrange a separate time for you to view the property.
In nearly all real estate auctions, the property is sold “as is” with no condition or contingency. That includes inspections such as home, termites, radon, lead-based paint, etc. We want potential buyers to be as knowledgeable about the property as they care to be. Thus, potential buyers are welcome to get any kind of inspection they want but it should be done prior to the auction. The inspection cannot be used as a negotiating item with the Seller, and the potential buyer must pay for the inspection.
Personal Property: The public is welcome to inspect the personal property prior to the auction. The inspection times scheduled vary depending on the type and amount of property being auctioned. In most cases the inspection time is indicated in the advertising. If not, feel free to call the Auctioneer to determine when the pre-auction inspection is scheduled.
What is the Process if I Want to Auction My Property?
- Contact Billy Frank Harned to discuss your objectives and the basics of how the auction method works.
- If it is a viable candidate for auction, Billy Frank Harned will suggest setting up a time to inspect the property.
- If determined to be a good candidate for auction, Billy Frank Harned will prepare a marketing program, proposed contract, and verbal or written proposal.
- Billy Frank Harned will go over the marketing program prior to signing any contract to explain the program and make any adjustments at that time. We have found it beneficial to present to the Seller a detailed advertising program prior to signing the contract. This enables the Seller to have a complete understanding of how the property is going to be marketed.
Selling Personal Property at Auction
The majority of our personal property auctions are for clients who are settling estates, downsizing, relocating, or liquidating their businesses. We do not have an auction house. All of our auctions are conducted at an onsite location. While some auctions have just a single seller, we have also conducted auctions involving multiple sellers with items consigned to a single auction.