On a sunny Florida afternoon, an energetic crowd gathers on the lawn of a high-end luxury estate. A loud and enthusiastic joke between an auctioneer, a group of bidders, and assistant bidders fills the air. For several minutes, the auctioneer asks for the next highest bid and the bidders respond. Suddenly, the bidders are silent. The highest bidder holds his breath waiting to win the auction. The auctioneer asks for one more offer. In a loud, clear voice spreading over the audience, saying, “Fair warning, last chance,” the auctioneer pauses, “SOLD!” And in less than 10 minutes, another multi-million dollar property has changed ownership.
Successful real estate auctions like the one above are taking place throughout North America and the Caribbean. Recently, real estate auctions have been on the rise, the rise in popularity partly due to rising inventories and declining buyer confidence. Properties that sold in weeks using traditional methods now languish in the market without being able to attract buyers even at the lowest seller prices. Many say the housing boom is over, but savvy buyers and sellers are benefiting from real estate auctions.
Real estate auctions work in rising or falling markets.
Regardless of market trends or cycles, real estate auctions provide an open and transparent process for buyers and sellers. Successfully conducted real estate auctions attract willing and willing buyers and motivate them to act now.
The auction method eliminates the “wait and see” attitude that serves to further depress real estate values. Buyers are always worried about overpaying. Buyers gain confidence from their purchases at real estate auctions because they can see what others are willing to pay.
When market demand is high and inventories are low, real estate auctions can generate sales prices well above what a willing seller would have agreed to in a privately negotiated treaty sale. In hot selling climates, many homeowners use traditional real estate methods; By negotiating with one buyer at a time, leave thousands of dollars of equity on the table. During rising markets, real estate auctions are the best way to set the maximum market price.
Evaluating your real estate for auction
Not all properties or sellers are good candidates for auction. First, sellers must be ready to sell now and for current market value. Also, a real estate auction will not fix the problems caused by a drop in the market value of your property – if you owe more than a willing buyer would pay, be prepared to close with your check book.
Properties that do well in real estate auctions have a high uniqueness factor. Ask yourself, “What makes my property different from most others?” Maybe you own a resort property or a 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 in setting a minimum bid. A seller must look for the lowest and most current offsets and price below that to generate the interest and urgency necessary for a successful real estate auction. Once the auction starts and the qualified bidders start competing with each other, you can watch the asking price rise.
Find a Qualified Real Estate Auctioneer
Start by checking with the National Association of Auctioneers, 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 Auction Conference where the latest techniques and innovations in the real estate auction industry are showcased.
Find out if the company you are interviewing is a full-time real estate auction company. Many real estate agents are obtaining auction licenses but have no experience with the auction marketing method. Running a successful real estate auction is nothing like traditional real estate sales (private treaty). Go to a real estate auction professional.
You’re probably better off 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, garden equipment, and some rare paint. Selling real estate at auction is a complex matter that should only be attempted by experienced full-time real estate auction professionals.
Commissions and fees can vary, sellers must pay all marketing expenses up-front, and buyers generally pay 10% of the sales price to the auctioneer, with a portion going 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 property. The terms and conditions of sale are established before the auction. Real estate auctions will follow one of three approaches:
Absolute auction
The property is sold to the highest bidder regardless of price; using this process often returns the highest selling price.
Minimum bid auction
The seller agrees to sell at or above the published minimum bid price; This method is useful for Internet auctions.
Seller confirmation or reservation auction
With a reserve auction, the seller “reserves” the right to accept or reject any offer, generally within 48 hours of the auction. Reserve auctions are used when there is a bond in the property of a lender or a short sale with a minimum sale price.