Selling real estate at auction allows the seller to take control of the marketing process and establish the terms of the sale. The property is sold on the seller’s time schedule, not the buyer’s. The Seller is “selling” and the buyer is “Buying” a real estate property in “As-Is” condition so there is no negotiation process of contingencies including financing, inspection periods or repairs. Eliminating financing contingencies gives the seller a far greater certainty of closing on an auction purchase contract. The auction creates a competitive bidding environment giving the seller the best opportunity to obtain the highest possible price and the current market value of the property. The final price is determined by competitive bidding with no limitations to the top side of the market value.
A property listed traditionally may be unrealistically priced. When an asking price does not represent the current market value of a property, buyers are reluctant to make a lower offer. With an auction, there is no asking price so that problem is eliminated. In addition, the short time period for promoting a real estate auction provides the opportunity to expose the property to more people in a given target market. The auction generates a sense of urgency for the Buyer to act now.
The goal of a successful auction is to generate the highest possible sale price for the property in the shortest amount of time. The ideal auction seller is a seller that is interested in completing the sales process promptly without waiting to the market to finally recognize their property and then negotiate a sales price. The ideal seller is motivated to sell the property and is ready, willing and able to accept market value. Your property may be owned with other people as joint ventures. The auction process provides a very fair and timely process in selling these types of properties and in the distribution of proceeds.
One advantage of the auction process for real estate is the benefits of a customized marketing plan. The property is exposed to the widest possible buyer audience, increasing the possibility of a successful sale at the highest possible price. Using an auction marketing campaign, the property will usually be marketed separately, differentiating it from other property listings. In areas where multiple properties are for sale, the property being sold by auction will gain the most attention.
The material defects of a property, known to the Auctioneer prior to the auction, will be disclosed to all bidders. However, at a real estate auction, the Auctioneer makes no representations, guarantees or warranties as to the property’s condition. The property is sold in whatever condition it is in the day of the auction. Buyers should conduct inspections prior to the auction in order to know the condition of the property on which they are bidding.
Typically a property is open for inspection during a series of open houses. Some sellers may choose to show properties by appointment only. Representatives for the Auction Company are on hand to answer question about the property and/or the auction process. Specific information will be available in the auction brochure, the property information packet (PIP) and in advertising materials.
Although not used in all regions or at all auctions, a buyer’s premium may be added to the high bid to reach the final sale price. The buyer’s premium is a percentage or an amount added to the high bid to determine the total purchase price to be paid by the buyer. For example, if the the high bid is $100,000 and the buyer’s premium is 5%, then the buyer’s premium is $5,000 ($100,000 x 5%). The $5,000 buyer’s premium is added to the high bid of $100,000. The total purchase price on the property is $105,000. Closing costs, as applicable, are the sole responsibility of the buyer unless otherwise stated by the seller. Refer to the Terms and Conditions of Sale in the marketing information to verify if a buyer’s premium and/or closing costs are applicable.
The sale is administered based on the Terms and Conditions of Sale of the auction. The Terms and Conditions of Sale provide information on the required deposit, closing date, etc. All bidders should become familiar with the Terms and Conditions of Sale prior to the auction. Note that at an auction sale, any announcements made by the Auctioneer on the day of sale take precedence over previously published or verbally conveyed Terms and Conditions of Sale.
An “absolute” auction (without reserve) means that the property is sold to the highest bidder, regardless of price. A “reserve” auction (subject to confirmation) gives the seller the right to confirm the high bid at the conclusion of the sale. Unless advertised as “absolute” and disclosed in the auction Terms and Conditions of Sale, auctions are considered to be “reserve” auctions.
The seller’s commission is the fee charge to the seller by the auction company for their services. This fee is usually a percentage of the sale price. The buyer premium is the fee added to the auction price to determine the final contact price and is paid by the buyer. The buyer’s premium may be a percentage of the auction price or a flat fee. At closing, an amount equal to the buyer’s premium is paid to the auction company for their services. Auction fees are usually contingent upon the amount and quality of services provide.
These are the top 10 most common real estate and auction questions we experience at Entz Auction and Realty. If you have any further questions not answered here, please do not hesitate to contact us.