REAL ESTATE AUCTIONS BENEFITS TO THE BUYER:

• Smart investments are made as properties are usually purchased at fair market value through competitive bidding
• The buyer knows the seller is committed to sell
• In multi-property auctions the buyer sees many offerings in the same place at the same time
• Buyers determine the purchase price
• Auctions eliminate long negotiation periods
• Auctions reduce time to purchase property
• Purchasing and closing dates are known
• Buyers know they are competing fairly and on the same terms as all other buyers
• Buyers receive comprehensive information on property via due diligence packet

AUCTION TYPES

ABSOLUTE AUCTION (or auction without reserve)

• The property is sold to the highest bidder, regardless of the price.
• Since a sale is guaranteed, buyer excitement and participation are heightened.
• Generates maximum response from the market place.
• Many sellers, including financial institutions and government agencies have begun to use this method more frequently.

MINIMUM BID AUCTION

• The auctioneer will accept bids at or above a published minimum price. This minimum price is always stated in the brochure and advertisements and is announced at the auction.
• Reduced risk for seller as the sales price must be above a minimum acceptable level.
• Buyers know they will be able to buy at or above the minimum.
• The seller may, however, limit interest in the auction to only those buyers willing to pay the minimum bid price, and therefore it must be low enough to act as an inducement rather than a hindrance.

RESERVE AUCTION ( an auction subject to Confirmation)

In this scenario, the high bid is reduced, in effect to an offer not a sale. A minimum bid is not published, and the seller reserves the right to accept or reject the highest bid within a specified time and anywhere from immediately following the auction up to 72 hours after the auction concludes. Sellers predetermine the price at which the property will be sold and are not obligated to confirm a sale other than at a price that is entirely acceptable to them. The main disadvantage of a Reserve Auction is that prospective buyers may not invest the time and expense of due diligence when there is no certainty they will be able to buy the property even if they are the highest bidder.

WHAT PROPERTIES ARE SUITED FOR AUCTIONS?

Ever wonder how you can tell if a property is well suited to auction? Then take the Two-Thirds Rule test!

Most properties are salable by auction. All types of real estate, including residential property (e.g., town homes, condominiums, cooperative apartments and single-family homes), commercial and industrial property, vacant land and even boat slips are sold at auction. Not all property, however, is suited for auction. If a property will only appeal to a narrow market, auction may not be the most effective marketing method.

An Auction Self-Test: The Two-Thirds Rule

One method to determine if auction is the best marketing strategy is the Two-Thirds Rule. This involves analysis of the market, property and seller situation. Generally, if two of the three parts (market, seller, property) lean towards auction, then auction should be offered to the seller as a sales option.

Market (Buyers) -- A good auction situation is one where the market is:

• A changing market
• A dull market; too much product but buyer interest is expressed
• Not enough of the property type (unique, lake front, etc.)
• An emerging market -- new developments could kick off a sales program, once some of the properties were auctioned
• A seller's market where there is known high demand and a lot of competition can take place

Seller -- A good auction situation is one where the seller:

• Needs immediate cash
• Has a partnership or marriage break-up
• Is moving out of the state
• Wants to liquidate an estate
• Is retiring
• Is an auction-minded seller
• Has a listing that is about to expire
• Has already purchased another house
• Knows the auction will bring a fair market price
• Has financial problems
• Has high carrying costs on the property

Property -- A good auction property is one that:

• Has a lot of equity
• Is unique -- there is enough buyer/market interest to encourage
• competition (unique properties are difficult to appraise)
• Has a lot of high carrying costs for the owner
• Is vacant -- vacant properties may encourage vandalism
• Is difficult to appraise