REAL ESTATE AUCTION REFERENCE GUIDE

This helpful and informative guide will provide you a better understanding on real estate auctions.

Below you will learn the following:

  • Are Auctions The Sale Of Last Resort?

  • What Factors Impact The Success Of An Auction?
  • The Benefits Of Selling Real Estate At Auction For Both The Buyer And The Seller
  • Three Types Of Real Estate Auctions
  • The 'What If' Factor - Common Questions
  • Understanding Marketing, Advertising And Related Expenses
  • Inside Look At Real Estate Auction Terms, Pricing And Bidding

 

This Real Estate Auction Reference Guide is available in a printable format which can be ordered free of charge by contacting us via email or telephone.

We suggest downloading and printing the printable version to share with your spouse, friends or business associates.


Auctions Are Often Thought Of As “A Sale Of Last Resort” and Distressed Properties.  

Is This True?

Not only is this NOT true – it could not be any further from the truth.   The fact is, the majority of auctions today don’t result from foreclosure or distress situations, but rather are the result of a seller choosing a cost-effective, accelerated method to sell a property.  Builders or financial institutions, for example, prefer auction rather than laboring for months or years to sell units of a development by one.  Auction allows the seller to eliminate virtually all long-term carrying costs, passing the savings directly to the purchaser in the form of a reduced price.  Auction is truly a win-win situation: sellers obtain immediate cash and buyers purchase properties at fair market value, the price determined by open, competitive bidding.

What Factors Impact The Success of An Auction?

  1. The Seller must have realistic expectations, including a fair sales price, terms and timing.
  1. The desirability of the property.  This includes location, condition, plus the value of surrounding properties.
  1. Since a variety of auction methods are available, carefully choose the auction type that best suits the property and the seller’s needs.
  1. A well planned, aggressive marketing/advertising campaign targeted to prospective purchasers is critical to an auction’s success.
  1. Using a recognized real estate auction company to ensure the auction is conducted in a professional manner
  1. followed up through the closing process.
  1. Making sure that due dilligence information is provided to prospective buyers ahead of time.
  2. Preparing the property for sale so it is presented to prospects in its best condition.

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THE BENEFITS OF SELLING REAL ESTATE AT AUCTION

 

Benefit to the Seller

  • Buyers come prepared to buy
  • Quick disposal reduces long-term carrying costs, including taxes and maintenance
  • Assurance that property will be sold at true market value
  • Exposes the property to a large number of prospects
  • Accelerates the sale
  • Creates competition among buyers – auction price can exceed the price of a negotiated sale
  • The seller knows exactly when the property will sell
  • The seller sets terms and conditions of the sale
  • Eliminates numerous and unscheduled showings
  • Takes the seller out of the negotiation process
  • Ensures an aggressive marketing program that increases interest and visibility
  • Seller can reject or accept the final bid price at auction – with exception of an ‘absolute auction’
  • There are no contingencies or “subject to” clauses

Benefit 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 motivated 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 a property
  • Purchasing and closing dates are known
  • Buyers know they are competing fairly and on the same terms as the other buyers
  • Buyers receive comprehensive information on property via property information packet
  • Closing is the same as a traditional sale

 

A LOOK AT THE TYPES OF REAL ESTATE AUCTIONS

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ABSOLUTE AUCTION
(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 marketplace.
  4. Many sellers, including financial institutions and government agencies use the ‘absolute auction’ method more frequently.

 

RESERVE AUCTION
(An auction sale subject to owner 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 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 dilligence when there is no certainty they will be able to buy the property even if they are the highest bidder.

 

MININUM 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.

The 'What If' Factor

What If The Sale Doesn’t Close?

A well conducted real estate auction which provides the necessary due-dilligence information on a property to prospects before the auction along with a signed bidder and purchase agreement along with obtaining an earnest money deposit greatly minimizes the chance of failure.   Failure to close happens infrequently.  If a sale doesn’t close, the sller may quickly find another interested buyer by turning to the next highest bidder.  In a traditional negotiated transaction, the seller may have to return to square one in search of a new buyer.

 

What Happens to the Earnest Money If A Buyer Decides Not To Complete The Transaction?

Earnest money in an auction situation is generally not refundable.  Deposits can be forfeited if the high bidder is unable to complete the sale, regardless of the reason.   If the seller
 cannot close because of defective title, etc…., the buyer’s deposit is refunded.  The rules and regulations on this issue will vary from state to state.

Earnest money in an auction situation is generally not refundable.  Deposits can be forfeited if the high bidder is unable to complete the sale, regardless of the reason.   If the seller cannot close because of defective title, etc…., the buyer’s deposit is refunded.  The rules and regulations on this issue will vary from state to state.

 

What If A Property Doesn’t Sell At Auction, Is it Possible to Still Market It?

Yes!  The auction marketing method will have exposed the property to a large segment of the buying public.  Many times a buyer will make an offer after the auction date.  In some instances, offers to buy the property PRIOR to the auction date are made and accepted. 

 

AN INSIDE LOOK AT REAL ESTATE AUCTION TERMS, PRICING AND BIDDING

  1. Under What Terms Does a Property Sell At Auction and Who Sets Them?

The seller sets the terms with the advice of American Eagle Auction & Appraisal Company, LLC.  It is necessary to have ‘balanced’ terms – terms and conditions that satisfy the seller’s needs, but not so one-sided to discourage buyer interest.  Usual terms require the high bidder to deposit earnest money (either a percentage of the purchase price or a specific stated amount)  and sign a purchase agreement immediately following the auction.   The balance of the purchase price is usually due within 30-45 days, at closing.    Properties generally sell “as is” with no warranties expressed or implied except as to title.   The buyer’s due dilligence must be done in advance of the auction and therefore American Eagle Auction & Appraisal Company, LLC usually prepares a detailed information packet to assist the buyer to make a wise buying decision.

  1. What is A Buyer’s Premium?

 The use of a buyer’s premium is commonplace in the auction industry.  It is an additional charge to the buyer, expressed as a percentage of the high bid and is added to the high bid to create the contract price.    The use of the buyer’s premium ensures the seller that they will receive the actual bid price of their property as the buyer is responsible for the commission to the auctioneer.

  1. Are the Buyer and Seller Assured of Getting A Fair Price?

Yes, if proper advertising and marketing is done.  An appraisal is merely an opinion from one individual.  It is NOT an offer to buy.  The real measure of a property’s value, at any given time, is what it will bring under competitive bidding from informed and motivated buyers.

  1. Must I Accept the High Bid At An Auction?

  No.  The auction can be structured in a way that gives the seller the right to accept, counter or reject any bid without having to disclose the minimum acceptable price prior to the auction.  Sellers will want to carefully select the type of auction that best suits their needs. *Exception - An 'Absolute' Auction' you must accept the final bid.

 

UNDERSTANDING MARKETING, ADVERTISING AND OTHER RELATED EXPENSES

How Are American Eagle Auction & Appraisal Company Auction Properties Advertised?

Because lead time in a real estate auction is generally short (6-10 weeks), the marketing program must be comprehensive, intense and targeted to the specific markets identified as prospective buyers. 

American Eagle Auction & Appraisal Company, LLC will design a specific advertising budget to properly expose the property to the marketplace.  Most auction marketing programs will include direct mail advertising (from a black and white postcard to a full-color brochure), print advertsing (local, regional and/or national newspapers, magazines, trade journals etc.) and signage (attractive, attention-getting signs posted on or about the premises).  Additionally, such activities as telemarketing, publicity, radio and television, billboards, Internet and email campaign, etc. are often used to enhance market exposure.

How Much Does Advertising/Marketing Cost and Who Pays For It?

Depending on geographical location, value of the property and size of the marketing area (local, regional or national), advertising budgets can run from one to four percent of estimated proceeds.  While the auctioneer prepares, coordinates and places all advertising, the advertising expense is the responsibility of the seller and is typically paid to the auction company at the signing of the auction contract.

How Long Does It Take To Market the Property, Have the Auction and Close the Sale?

The time-frame varies, depending upon the type of property auctioned.  Generally, however, the process takes from 6 to 10 weeks from listing to auction day.   Sellers usually allow buyers an additional 30-45 and even 60 days for closing.

 

 

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This site is dedicated to the auction method of marketing and appraisal services in the state of Michigan by auctioneer Ken Lindsay of American Eagle Auction & Appraisal Company.
Serving Detroit, Ann Arbor, Livonia, Howell, Brighton, South Lyon, Farmington Hills, Tecumseh, Adrian, Wyandotte, Trenton, Grosse Ile, Redford, Woodhaven, Rockford, Westland, Inkster, Midland, Monroe, Garden City, Novi, West Bloomfield, Carleton, Rochester, Whittemore, Traverse City and many other fine cities