The Auction Advantage
Why should you consider the auction marketing method?
The
following are a few documented advantages commonly cited by those in the
industry:
For
Sellers:
- Buyers come
prepared to buy. Lookers are eliminated because bidders must pre-qualify
themselves through a non-refundable deposit of 10% to 20% if they are
successful bidders.
- The auction
creates a sense of urgency and brings interested parties to a point of
decision.
- Auctions
create maximum exposure for the property. Auctions are a concentrated
effort, so the exposure and efforts are more intense and visible.
- The seller
avoids high carrying and holding costs.
- Auctions
create and increase buyer competition for property.
- The seller
can set a specific date, time, and location for sale of the property.
- Seller
controls all of the sale conditions and terms.
For Buyers:
- Buyers know
the seller is committed to sell.
- The buyer
knows he is getting the property at a fair market price set by public
bidding.
- The buyer has
full control of what he wants to bid to own the property.
- Auctions
reduce the potential negotiating time for the buyer.
Auction Formats for Real Estate
Absolute Auction
The real estate sells to the high bidder. The
seller does not reserve the right to decline the final bid received by the
auctioneer. Absolute auctions generate maximum buyer response. However, it is
important to recognize the market risk potential for the seller.
Auction With Reserve
The seller reserves the right to accept or decline the final bid. Auctions with
reservation may or may not have an advertised minimum bid. The advantage to the
seller is that he or she is not obliged to accept any price other than what he
or she and the auctioneer have established as a reserve price for the property.
The drawback is that some buyers may not want to invest the money and time in
researching a property sale that is subject to seller approval of the final
bid.
Minimum Bid Auction
Bids are accepted at or above the disclosed advertised minimum. The advantage
to the seller is that it does create a safety net that does not exist in the
absolute auction. At the same time, if the minimum bid is set at the proper
level, considerable buyer excitement can enter the marketplace. The
disadvantage is that the seller may be limited to only those buyers interested
at the disclosed minimum bid. The minimum bid auction format has been very
successful in marketing of real estate previously listed through traditional
sales methods.
The Auction Process
Marketing
An aggressive marketing program is critical to an
auction's success. Massive interest must be created in the property. The
advertising budget is set according to specific properties and the type of
market that needs to be reached. The budget is then broken down into various
forms of advertising that will best reach the market for the individual
property. Direct mail, newspapers, trade journals, radio, property signs,
telephone solicitation, property brochures, and possibly TV are all avenues
available.
Depending
upon the type of property, location, value, and the size of the market area,
the advertising budget can run from 1/2 percent to 5 percent of the estimated
value.
The
auction staff will devote many days of prospecting the market to identify potential
buyers and discuss their interest in the property to be offered.
Time Frame
The allowed time for a real estate auction varies depending on the type of
property, but generally it is 60 to 90 days from the initial planning stage to
closing. The auction itself may take from just a few minutes for single
property to several hours for a multi-parcel auction.
Terms of an Auction
The seller sets the terms and conditions of the auction with advice of the
auctioneer. The terms must be in balance...keeping in mind that there are two
parties in the transaction. There should be no contingency clauses on auction
day. All possible concerns and questions of the buyers should have been
addressed prior to the sale day. Usual terms are that the high bidder(s) deposits
with the auctioneer an advertised earnest money deposit (% of the purchase
price) and enters into a pre-approved contract immediately following the
auction. The balance is paid in 30-60 days with delivery of good title from the
seller. Items of consideration in sales terms:
- Percent down
- Leases
- Reservation
of minerals
- Property
information to be provided
- Legal
descriptions
- Cash vs
contract sale
- Closing date
to be advertised
- Abstract vs
title insurance
- Real estate
taxes
- Maps
- Possession
- Survey
