Real Estate Auctions – The New Land Rush

On a sunny afternoon in Florida, an energetic crowd gathers on the lawn of a high end luxury estate. A loud and eager banter between an auctioneer, a group of bidders and bidder assistants fills the air. For several minutes the auctioneer asks for the next highest bid and the bidders respond. Suddenly the bidders grow silent. The high bidder holds his breath in anticipation of winning the auction. The auctioneer calls for one more bid. In a loud clear voice which rolls over the audience he says, “Fair warning, last chance” the auctioneer pauses, “SOLD!” And in less than 10 minutes another multimillion dollar estate has changed owners.

Successful real estate auctions like the one above are happening all over North America and the Caribbean. Recently real estate auctions have been on the rise, the increase in popularity is partly driven by growing inventories and fading buyer confidence. Properties that were selling in weeks using traditional methods are now languishing on the market unable to attract buyers even as seller’s lower prices. Many say the real estate boom is over but savvy buyers and sellers are profiting from real estate auctions.

Real Estate Auctions Work in Up or Down Markets.

Regardless of trends or market cycles, real estate auctions provide an open and transparent process for buyers and sellers. Properly conducted real estate auctions attract ready and willing buyers and motivate them to act now.

The auction method removes the “wait and see” attitude which serves to further depress real estate values. Buyers are always concerned about overpaying. Buyers gain confidence with their purchases at real estate auctions because they can see what others are willing to pay.

When market demand is high and inventories low, real estate auctions can deliver selling prices well above what a willing seller would have accepted in a negotiated private treaty sale. In good selling climates many property owners using traditional real estate methods; negotiating with one buyer at a time, leave thousands of dollars of equity on the table. During up markets real estate auctions are the best way to establish top market price.

Evaluating Your Real Estate for Auction

Not every property or seller for that matter makes a good candidate for auction. First of all sellers must be ready to sell now and for the current market value. Also a real estate auction will not fix problems caused by a downturn in market value of your property, if you owe more than a willing buyer will pay, be prepared to come to closing with your check book.

Properties that do well in real estate auctions have a high uniqueness factor. Ask your self, “What makes my property different from most others?” Maybe you own a resort property or high end luxury home, commercial properties and land do very well at auction. Real estate auctions thrive on uniqueness. If your property is like everyone else’s, the best thing you can do is offer the most competitive price.

Most importantly sellers must be reasonable about setting a minimum bid. A seller must look at the lowest, most current comps and price below that to generate the interest and urgency necessary for a successful real estate auction. Once the auction begins and qualified bidders start competing against one another you can watch the selling price increase.

Locate a Qualified Real Estate Auctioneer

Start by checking with the National Auctioneers Association, the best real estate auctioneers belong to this organization. These real estate auctioneers are well trained and adhere to a standard of practice and a code of ethics. Many attend the annual International Auctioneers Conference where the latest techniques and innovations in the real estate auction industry are presented.

Find out if the company you are interviewing is a full time real estate auction firm. Many real estate agents are getting auction licenses yet have no experience with the auction method of marketing. Conducting a successful real estate auction is nothing like (private treaty) traditional real estate sales. Go with a real estate auction pro.

You’re probably better of with an auction house that specializes in real estate auctions. There are many qualified auctioneers who have generations of experience selling personal property; furniture, dishes, lawn equipment and the occasional rare painting. Selling real estate at auction is a complex matter that should only be attempted by full time experienced real estate auction professionals.

Commissions and fees may vary, sellers must pay all marketing expenses up front and buyers typically pay 10% of the sales price to the auctioneer of which a share goes to participating real estate agents.

Types of Real Estate Auctions

Auctions are effective because they create a seller’s market. Professionally conducted real estate auctions create urgency, a reason to buy today and competition for the property. Terms and conditions of sale are established ahead of the auction. Real estate auctions will follow one of these three approaches:

Absolute Auction

The property is sold to the highest bidder regardless of price- using this process often returns the highest sale price.

Minimum Bid Auction

Seller agrees to sell at or above a published minimum bid price – this method is useful for internet auctions.

Seller Confirmation or Reserve Auction

With a reserve auction, the seller “reserves” the right to accept or decline any bids usually within 48 hours of the auction. Reserve auctions are used when there is a lien on the property from a lender or a court ordered sale with a minimum selling price.

Real Estate Auctions (How Do They Work)

The popularity of auction sales of real estates is increasing day by day despite the dominance of the traditional process of real estate selling. Earlier these auctions were labelled as dishonour sales done by the distressed sellers when there was no other way to liquidate a property. But this view has changed as the number of real estate auctions are increasing day by day because sellers of residential as well as commercial properties are opting to auction their property directly or turning to real estate broker houses to get top price as per market rates from the auctions.

Auction opportunity arises when a seller’s mind is auction oriented with a hope that the property will fetch a fair market price. To get a fair price, his equity position in the auctioned property should be strong. With a strong equity position in the property, he will save the cost of paying a sales commission. The time of auctioning should be perfect, when the market is soaring high. The auctioneer should also try to avoid bearing high carrying costs associated with the property.

A profitable auction opportunity is created when there is limited supply of a particular type of property whose demand in the real estate market is relatively high or the market is declining with limited buyer’s interest in this traditional sales process.

When a property is offered for auctioned, a sense of urgency arises to bring the interested parties together on a particular day and the sales process creates a sales price through competitive bidding among the participating parties.

In early days of real estate auctions only the properties in bad conditions or subjected to foreclosure were auctioned. But now sellers are shifting to real estate auctions to sell their homes. This transformation has occurred because the earlier believe that a seller will not take the risk of auctioning his property at a lesser price than its market value has changed. Real estate auctioneers are at a liberty to set a minimum price which is more than its market value that he will receive in any case. In addition by setting a minimum price, he will no longer have to bear the risk of buying back the property if it does not reach that price and will also save the cost of paying the required sales commission to the auction house.

Many real estate owners prefer to go for a direct auction instead of going to a auction houses to avoid payment of sales commission to real estate brokers which is about 8-10 percent of the property’s value. Also the property owners have absolute control on the auction sales process. This is essential when a real estate takes lot of time to sell and the owner is represented by a real estate agent or broker. Many times, it is wise for a real estate owner to auction a property not in use to cut down maintenance expenses. Real estate auction is an exciting event both for the auctioneer and the bidding parties therefore they are always well attended.

Since auction is the best way to get true market value for the real estate, the magic of an exciting real estate auction works for the marketing of these properties for sale. Onus rests on the auctioneer to create demand or an urge to make a bid in the buyers/bidders mind and to attract the attention of the potential buyers/bidders. The potential buyers of the property are then registered after it is ensured that they are financially qualified. It is to be ensured that a considerable sum is paid by the buyer as a down payment which is non refundable and both parties are willing to close the deal as soon as possible. It is necessary to make sure before the auction that the buyer is financially secure so that the seller will not have to wait for receiving the entire payment. Many times it has been found that real estate auctions remain incomplete because the buyer or successful bidder is turned down for mortgages.

The following factors should be kept in mind before a real estate is auctioned by the property owner-

. He should consult experienced and professional auction consultant who have specialized in real estate auctioning.

. It should be ensured that the marketing campaign of the auction event focused properly to have a high impact.

. Importance should be given on direct mail marketing to targeted bidders/buyers.

. The auction event should be advertised in print and audio visual media to have a greater impact. If possible the consignment should be assigned to a reputed advertising agency to make the ad campaign more attractive.

. The auction event should also be advertised through internet and email.

After the promotion or advertisement campaign is launched, the auction event takes place within a few weeks on completion of official formalities. Sellers are informed about the auction date before hand after the auctioneer is ensured that the sellers/bidders are able to meet the preset terms and conditions laid down by him.

Following are the advantages of real estate auctions for the seller-

. The property owner is able to make a quick liquidation of their property.

. The auction is successful in creating a healthy competition among the bidders.

. Their property is exposed to a wide range of prospects.

. Closing is accelerated.

.The sellers are well aware about the date and time when the property will be sold.

. Auctions are successful in considerably bringing down the amount of time a property is on the market for sale.

. Auction gets rid of number of out of the blue events related to property sales.

. Auction reduces the burden of negotiation process from the sellers mind. He is able to sell the property according to the terms and conditions set by him.

. In contrast to conventional sales processes where it is mandatory for the property owner to make necessary improvements and renovations to get a fair price, these properties are auctioned on as-is-where-is basis. Potential buyers receive enough time to make a decision on whether to make a bid or not after having a good look at the property to be auctioned. Therefore it is sold with no emergency and the seller gains from it.

The buyer also enjoys innumerable advantages from real estate auctions, they are-

. He can set his own purchase price.

. He purchases the property at a fair market price.

. He does not have to make long negotiations or bargains to finalize a deal.

. Auction reduces the time to purchase a property.

. He will not have to worry about emergencies because purchasing and closing dates are known to him beforehand.

. Buyers are well aware that sellers are predetermined to sell.