HOW IS A REAL ESTATE AUCTION DIFFERENT FROM A TRADITIONAL REAL ESTATE SALE?

The definition of a real estate auction is: “THE FIRM AND TIME DEFINED SALE OF REAL PROPERTY BY COMPETITIVE BID”. In traditional realty sales the buyer and the seller have no real idea of when the closing will occur, nor is there any locked in firm price since even after the contract is signed the price is still open for negotiation that comes out of the property inspection. Also despite the signed contract the deal is almost always contingent upon the acquisition of a mortgage by the buyer. The auction method is the only real estate sales process that establishes a FIRM TIME DEFINED DATE FOR THE SALE AND THE CLOSING; A FIRM AND IRROVABLE PRICE FOR THE SOLD PROPERTY; AND A NON-CONINGENT SALE.

IS IT TRUE THAT ONLY REAL ESTATE FORECLOSURES ARE SOLD USING THE AUCTION METHOD?

This has been a myth circulating from town to town for decades and is definitely not the case. The auction method of selling real estate has been chosen over traditional methods for centuries, the most famous of which was the auction sale of the entire Roman Empire. The empire that sprawled from Syria on the East border to the Danube on the North border and Britain on the West border. This largest auction sale of all time was brought about by the political upheaval with the Praetorians issuing a proclamation for an appointed time to begin the sale which eventuated in the dismanteling of the Roman Empire.

Bringing this back to a more meaningful time for us shows realty auctions chosen over traditional methods because it is a no nonsense method of selling real property that results in cash bidders not tire kickers, expeditious closings of all types of properties, non mortgage contingent sales and the best possible market price for the property. Our company has never sold a forclosed property but rather substantial ordinary properties for people looking to move on with their lives.

DOESN’T THE AUCTION SALE MEAN THAT I GIVE AWAY MY PROPERTY WITHOUT RECEIVING A FAIR MARKET VALUE?

Again this is not true. Actually the word is derived from the Latin root “auctus” which means to increase in distinction to traditional methods of realty sales in which prices usually go from higher to lower. The auction method goes in the opposite direction starting off lower and through competitive bidding in the marketplace ends up higher.

HOW DOES THE REAL ESTATE AUCTION WORK?

When an owner retains the services of an auction marketing company the auction company strips away all the mystery and usually boils it down to three segments: 1)listing, 2)selling, 3)closing

1. LISTING: First it should be understood that the listing for an auction sale of property is exclusive with the auctioneer/broker and that this period runs from the time of the signing of the listing agreement through 60 days after the auction sale has been completed. During the listing period the owner provides the auctioneer with all the pertinient documents and factual information concerned with the property that is for sale to permit the auctioneer to begin to create the auction marketing program that will entice the buyers to bid on the property. Documents such as deeds, latest tax assessments, outstanding mortgages and liens, certificates of occupancy, surveys, leases, rental agreements, and other related documents necessary to present a clear legal picture of the property for sale. Next the owner should provide any and all history on the property as attached to the property such as landmarked property declarations. Once all documents are received by the auctioneer a series of photos of the property will be taken in order to create the actual marketing materials for the sale and to provide for internet presence. Simultaneously with that the owner will be expected to clean up the property to provide “good curb appeal” and “interior selling presence”. The better it looks the higher the potential seeling price.

2. SELLING: The second segment or the selling period starts with placing auction sale signs on the property and nearby community, fact sheets and photos on the internet, and the creation and mailing of color advertising materials to the bidding public. During this period the advertising will be conducted in all appropriate media to market the property to the target audiences. Two previews of the property will be held as open house examination times. Also during this period all interested parties are encouraged to have engineers inspect the property so that they know what the condition of the property is prior to going into the actual auction bidding process. The open houses last for approximately 2 hours each and that is the last inspection period for the property by the public. The viewing restrictions are used to prevent an influx of tire kicking Sunday viewing curiosity seekers and to invite only those interested buyers to examine the property. The auctioneer is only interested in those prequalified ready, willing, and able buyers to see the property. Also during this period the potential buyers are supplied with all documents necessary to perform due diligence for the property including but not limited to the “terms and conditions of sale”, the “contract for sale and purchase” and other pertinent documents necessary for the bidder to review prior to the auction day. The seller is also encouraged to contact any potential buyer they may know to come to the auction previews to broaden the buying audience. The day of the auction the auction team arrives sets up their registration table, clerking and bookeeping stations and register any final bidders that show up. During this period the potential buyers have one last chance to examine the property prior to beginning the auction. The auction begins at 12 in the high noon and is over in about 5 minutes. On conclusion of the auction the successful bidder and under bidder are invited to the table to sign contracts and left bid documents as well as their irrevocable deposits.

3. CLOSING: The final period in the auction process is closing. This period also goes with a pre set schedule of events to make certain that all parties are on the same page and moving towards an expeditious closing of the property and transfer of deed. The closing usually occurs within 30 days after the sale but in some instances can take as long as 45 days due to the need to provide a clear and unencumbered title for transfer. It is necessary for the seller to maintain all property insurances during this period until the closing is completed successfully.

WHAT PRICE CAN I EXPECT TO RECEIVE FOR MY HOME?

The realities are that this is a complex area and price is affected by the many variables in the marketplace. The key to achieving the best possible price for your property is to have a realistic selling price in place at the time of the auction event. Every home sells if it is priced correctly for the marketplace. The auctioneer/broker is a member of the National Auctioneers Association and is an AARE certified realty auctioneer as well as a New York State licensed Real Estate Broker. The expertise garnered from the necessary educational requirements for the auctioneer/broker permits the auctioneer to establish a much more realistic price to fit into the current marketplace. It is important to remember that because the owner has enhanced the property with many improvements those were of the owner’s choosing and will not necessarily affect the pricepoint positively. THE HIGHEST PRICE ACHIEVED AT AUCTION WILL ALWAYS BE THE BEST PRICE POSSIBLE FOR THE PROPERTY AT THE TIME OF SALE.

ONCE THE AUCTION IS OVER DO I HAVE TO ACCEPT THE HIGHEST BID OFFERED AT THE AUCTION?

There are two types of auction sales conducted using the auction method. One is the “Absolute Auction” and the other is “Subject to Owner Confirmation”. The absolute auction is a rare occurrence in real estate and means that the winning bid is the price the property is sold for without any interference from the property owner. When absolute auctions are conducted very large numbers of people show up to bid and there is usually fierce competition for the winning bid; however, that does not mean that the owner is neccessarily happy with the price achieved for the property belieiving that it should have brought much more. The most popular form of the auction method used is “subject to owner confirmation”. In this type of sale the owner’s expectations for a minimum price are already established via the listing agreement and if that price is achieved the property is sold and the owner is bound by that price. However, if the minimum price is not achieved the highest price acheived at the auction will be brought to the owner and they have a right to accept the lower price or not to accept.

HOW MUCH DOES THE AUCTION COST ME?

There are fees associated with the marketing and listing of the property for the auction and these pertain to an auction that is “subject to the owners confirmation” only. The absolute auction carries no fees for marketing or sale of property. The usual cost associated with the reserve auction is 1 to 1.5% of the reserve price for the property or an average of about $3500.00. There are no other costs involved.