REAL ESTATE AUCTION MARKETING
Questions & Answers (For Sellers & Buyers)
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 a Real Estate Auctioneer.
2. What are the Benefits of a Real Estate Auction?
The Real Estate Auction is definitely a win-win proposition for everyone involved. The seller disposes of properties quickly and efficiently, thereby saving long term carrying costs such as interest, real estate taxes, and maintenance. 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 the assurance of watching the property's true value emerge as the bidding process progresses. For both buyer and seller, fair market values for the property prevail.
3. Are all Properties suitable for Auction?
Most properties, but certainly not all, are saleable by auction. Residential property (including town homes, condominiums, cooperative apartments and single-family homes), commercial property, vacant land, even boat slips, are sold at auction. Some sellers try to sell unsuitable or unmarketable property though. This is property that perhaps has been on the market too long, causing prospective buyers to consider it “tainted” or perhaps the project was poorly constructed or planned.
4. If the Property doesn’t sell at Auction is it possible to still market it?
Yes. The real estate auction marketing method has exposed the property to a large segment of the buying public. Many times a buyer who wants the property but is uncomfortable with the auction process will make an offer after the auction date. In other instances offer s to buy the property prior to the auction date are made and accepted. Auction pressure forces buyers to act.
5. 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 all informed motivated buyers.
6. 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 property’s value. At auction, values settle at the level the market can bear, neither elevated nor defined.
7. Real Estate Auctions are often thought of as a “Fire Sale” for someone who cannot make their Mortgage payments. Is this true?
Unfortunately, although most other forms of auctions, like art auctions, have a very positive image, real estate auctions have suffered in the past from a poor image. However, today a vast majority of Real Estate Auctions come from “Seniors” downsizing. Auctions today don’t result from individuals repossessed properties, but rather are a result of the smart seller, who chooses the cost-effective, accelerated method of selling a property rather than laboring for months or years to sell it. This method of sale allows the seller to eliminate virtually all long term carrying costs. These cost savings to the seller are passed along directly to the purchaser in the form of reduced prices. It is truly a win-win situation. Sellers can move on, and buyers can purchase properties at fair market value.
8. What Factors determine the Success at an Auction?
A) The desirability of the property being sold. This includes location, condition and
B) An aggressive marketing and advertising plan geared to prospective purchasers.
C) Realistic expectations on the part of the seller.
D) Selecting the type of auction that best suits the property and the seller’s needs.
E) Conducting the auctions in a professional manner and following up through closing.
F) Undertaking due diligence so buyers are knowledgeable and the only issue is price.
9. 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 it’s own powerful promotion and advertising. Auction marketing is an intensive effort and a well-timed plan to create massive interest in the properties available for sale. The adverting budget is established according to specific properties and the type of market that’s needed to be reached. That budget is broken down into various forms of adverting 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 adverting aimed at local and possibly regional or national papers, ads in trade journals and magazines, radio ads, signs posted on the property and possibly television and cable ads, and phone solicitation. A qualified and experienced real estate auction company knows which forms of advertising 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 the property thereby yielding true fair market value for a seller’s holding.
10. 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, usually 30 to 45 days from the auction to the closing.
11. Under what terms does a Property sell at Auction and who sets the terms?
The seller sets the terms with the advice of the real estate 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 with the balance of the purchase price due usually within 30 days at the closing. The seller may provide title insurance. Properties generally sell “as is” with no warranties expressed or 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.
12. Who usually buys at Real Estate Auction?
Anyone can benefit from buying at a real estate auction. Empty nesters and investors comprise a large segment of the buying public.
13. 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 high 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 deposits will be refunded immediately.
14. How much does an Auction Cost?
Auctioneers, like real estate brokers, charge a commission as a percentage of the sales price, that is pre-determined. In addition, the out-of-pocket expenses relating to marketing and promotion as well as to conduct the auction are paid by the seller.
15. What are the various methods of Auctioning that a seller may choose from?
First, is the absolute auction or auction without reserve. The seller legally agrees to sell at the auction regardless of the final high bid price. Since a sale is guaranteed the buyer excitement and participation are heightened. As a result, the price of real estate can be maximized.
Second, is the minimum bid auction. Here the owners sell at or above a minimum bid. This type creates a safety net for the sellers, however this can limit interest in the buyers.
Third, is the auction with reservation/owner confirmation. The seller reserves the right to reject the final bid price. The chief advantage of this type of auction is that the seller isn’t obligated to accept a price that’s entirely unreasonable.
16. 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. Through auctions the seller is in control and knows that if properly priced the property will sell on a certain date that is usually within 30-45 days from the auction.
17. 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 obligates the seller to transfer title to the highest bidder that meets or exceeds the reserve price in a non-absolute offering. The buyer knows that he/she is getting the property at a 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 has negotiating power. The buyer can withdraw from the bidding at any time until the gavel falls.