Understanding the Auction Process

 

If you have been trying to sell your home without success then a real estate auction may be a great alternative. In an auction you literally know the date your home will be sold! Auctions bring buyer attention like no other marketing tool available and create buyer urgency that gets homes sold fast. Below is a simple explanation of the types of auctions available. Depending on your situation your auction consultant will recommend which one will be best for you. Contact Rebecca Giacobba 410-320-4868 to see what is right for you.

 

Absolute Auction

Absolute Auction means highest bid wins, regardless of price. The typical result? More money for the seller because of the competitive nature of bidding. Competition typically heats up most intensely at Absolute Auctions because bidders know that by besting a rival across the room or online, the property can be theirs. But of course, other bidders have the same strategy and desire. Absolute Auctions typically get the most bidding. For the seller, the risk associated with an Absolute Auction is greater than the other types of auctions, but so is the potential reward.

Minimum Bid Auction

Minimum Bid Auctions begin at a minimum price established by the seller. Bidding must begin at least at that minimum before there can eventually be a sale. The minimum bid is published and announced by the auctioneer at the start of bidding for that particular property. These auctions offer a certain level of safety to the seller but are not usually as attractive to buyers as an Absolute Auction. A key strategy for a Minimum Bid Auction is for the seller to set the minimum bid low enough to attract the interest of buyers. Setting the minimum bid too high will discourage initial bidding.

Reserve Auction

Reserve Auctions allows the seller to accept, reject or counter the “winning” bid, for any reason. Sellers typically make this decision before the auction event ends. This gives sellers protection so their properties will not be sold below what they consider acceptable. However, sellers should be aware that Reserve Auctions typically generate the least amount of interest among potential buyers, because buyers know their "winning" bid can ultimately be rejected.

Sealed Bid Auction

In a Sealed Bid Auction, bidders privately submit their one best offer, in writing and in a sealed envelope. The bids are opened privately by the auctioneer and seller who do not reveal the bids to any of the participants. The seller can take one of the following courses of action: Accept the highest or best bid; reject all bids and call for a “Best and Final” bid from the two highest bidders, or just commence serious negotiations with all the identified bidders.  
  
Sealed Bid Auctions are often used for properties that do not have a broad market or appeal. Furthermore, keeping the bids private helps ensure that if all bids are too low for any of them to be accepted by the seller, the property will not become stigmatized by having a perceived low value in the marketplace.

Two-Step (or Combo) Auction

The Two-Step Auction is one in which sealed bids are sought from bidders (the first step) and if the seller does not accept the highest bid then the top five bidders are invited to participate in live bidding on an absolute or reserve basis (the second step) to determine the highest bidder. 
 
With distinct advantages to each of these common types of real estate auctions, sellers are encouraged to consult with the specialists at RealEstateAuctions.com for the best fit for each particular property.

 

 

 
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Comments

  • I agree with Billie. The auction properties are usually the ones that sit on the market for sufficient time with no offers/interest. I believe it transfers from the AM to an Auction company where then the process has new rules and requirements (bpos, certain inspections) just for it to hit the "auction block" at a higher price than it was listed for in the first place. It's pretty darn crazy at times but after a few you get used to their "requirements". I've noticed it's hard to get it shown by other agents due to the unknown fees and certain risks to their clients, but it's okay because we have mandatory open houses from 12-4pm  usually without a/c or heat :(

  • Interesting that you do not mention the role of the real estate agent in this process and the diminishing commissions when a property is sold at auction. For example lets say I have an REO property which is in pre-list phase. I am expected to visit this property once a week for how ever long the process takes ( I am closing on one next week where the final f/c date was November 2010, and the lock out date was March 2012.- Yes, that is over 65 visits). I, as listing agent am responsible for making contact with occupants, informing them of their rights, offering relocation assistance, attending eviction and supervising clean-out, repair bids etc. If this property is sent to auction, I am expected to make it available to the public for viewing, and at the end of it all, will collect a flat fee of less than $700. I am not complaining about the work, but I believe I am going to net the seller more than an auction will, which will more than pay for my & buyer's agent commissions.

    Now, lets look at it from the consumer (buyer), Do they understand the process? Do they have representation? Is their EM deposit at risk? Are they being charged a "buyer's premium"?

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