Q. What are the different types of Real Estate Auctions available ?
A. Essentially there are three types of auctions:
1. Absolute Auction (or auction without reserve) 1. The property is sold to the highest bidder, regardless of the price. 2. Since a sale is guaranteed, buyer excitement and participation are heightened. 3. Generates maximum response from the market place. 4. Many sellers, including financial institutions and government agencies have begun to use this method more frequently.
2. Minimum Bid Auction
1. 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. 2. Reduced risk for seller as the sales price must be above a minimum acceptable level. 3. Buyers know they will be able to buy at or above the minimum. 4. 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.
3. 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 — anywhere from immediately after 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 cost of due diligence when there is no certainty they will be able to buy the property even if they are the highest bidder.
Q. What properties are suitable for Auction?
A. 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 decide 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:
Seller — A auction situation is one where the seller:
Property — A good auction property is one that: