Farm and Land Auctions | Auction Process with Farmers National Company

Auction Process

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

The following are descriptions of three different types of real estate auction formats:

� 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

The following describes the different components of the auction process for a property:

� 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:

o Percent Down

o Leases

o Reservation of Minerals

o Property Information to be Provided

o Legal Descriptions

o Cash vs. Contract Sale

o Closing Date to be Advertised

o Abstract vs. Title Insurance

o Real Estate Taxes

o Maps

o Possession

o Survey