Real estate auction is a method of buying and selling real estate that accelerates the purchasing process through the services of an auctioneer.

The real estate auction is definitely a win-win proposition for everyone involved. The seller disposes of properties quickly and efficiently, thereby saving long-term carrying costs such as interest, real estate taxes, and maintenance. For the buyer, this can mean a smart investment, since properties are usually purchased at fair market value through competitive bidding.

Because the auction sale is conducted in an open forum, both motivated buyers and motivated sellers have the assurance of watching the property's true market value emerge as the bidding process progresses. For both buyer and seller, the property's fair market value prevails.

Most properties, but certainly not all, are saleable by auction. Residential properties, including townhomes, condominiums, cooperative apartments, and single-family homes, as well as commercial properties, vacant land, and even boat slips, are sold at auction. The majority of sound developments that can be marketed effectively do extremely well at auction. The best auction marketing companies, before accepting a project, will:

Know the market.

Analyze the property and/or development closely to ensure success for both the buyer and seller.

Yes. The Auction Marketing Method has exposed the property to a large segment of the buying public. Many times, a buyer who wants the property but is uncomfortable with the auction process will make an offer after the auction date. In other instances, offers to buy the property prior to the auction date are made and accepted.

The only genuine measure of the value of real estate is what someone else is willing to pay for it. An appraisal is merely an informed opinion. It is not an offer to buy. The real measure of the value of real estate, at any given time, is what it will bring under competitive bidding from informed and motivated buyers.

Not at all. Real estate auctions reveal the true market value of a property because auctions are conducted in an open forum where all bids are known, and participants are given immediate feedback on the property's value. At auction, values settle at the level the market can bear, neither elevated nor deflated.

Although most other forms of auctions, like art auctions, have a very positive image, real estate auctions, at times, have suffered from a poor one. A majority of auctions today don't result from individuals' repossessed properties, but rather are the result of the smart seller, usually a builder, fine estate home owner, or financial institution, who chooses the cost-effective, accelerated method of selling a property or development rather than laboring for months or years to sell the property or unit one by one. This accelerated sale allows the seller to eliminate virtually all long-term carrying costs. These cost savings are passed along directly to the purchaser. It is truly a win-win situation. Property owners can move on with their lives, developers can move to their next project, and buyers can purchase quality properties at fair market value.

The desirability of the property being sold. This includes location, condition, and surrounding properties. An aggressive marketing and advertising plan directed to prospective purchasers. Realistic expectations on the part of the seller. Selecting the type of auction that best suits the property and seller's needs. Conducting the auction in a professional manner and following through to closing. Undertaking due diligence beforehand so buyers are knowledgeable. The only issue that remains is price.

This varies greatly depending on the type and value of the property being sold. One essential underpinning for a successful auction is a highly aggressive marketing program. Each auction has its own powerful promotion and advertising. Auction marketing is an intensive effort and well-timed plan to create massive interest in the properties available for sale. The advertising budget is established according to specific properties and the type of market that needs to be reached. That budget is then broken down into various forms of advertising that will best target the market for that auction. The various forms of advertising are: sale bills or brochures mailed directly to prospective purchasers and posted in public places, newspaper advertising in local and possibly regional or national papers, ads in trade journals and magazines, radio ads, signs posted on the property, cable television ads, and phone solicitation. A qualified and experienced auction company knows which forms of advertising are best for a particular type of auction and its location and will facilitate everything from preparing the advertisements to placing them in the desired media. The aggressive advertising reaches large groups of buyers who will competitively bid on property, thereby yielding true fair market value for a seller's holdings.

The time frame varies depending upon the type of property auctioned. Generally, the process takes 30 to 90 days from listing to closing. The auction itself may take anywhere from twenty minutes on a single property to all day on a multi-property auction.

The seller sets the terms with the advice of the auction company. Some terms included in the auction contract are as follows: The high bidder deposits earnest money (either a percentage of the purchase price or a stated amount) and enters into a purchase contract immediately following the auction. The balance of the purchase price is due within 30 to 60 days at closing. The seller generally provides title insurance. Properties generally sell "As Is" with no warranties expressed or implied. Since the only issue left is price, due diligence is done in advance of the sale, such as preparation of information packages and inspection reports.

Many of the same things happen in an auction situation as in any other real estate transaction. The earnest money deposit is forfeited if the high bidder is unable to consummate the sale, regardless of the reason. If the seller fails to close because of defective title, etc., the buyer's deposit will be refunded immediately.

The commission is negotiable. In addition, the out-of-pocket expenses relating to the marketing and promotion, as well as the conduct of the auction, are $500.00.

Essentially, there are three different types of auctions:

ABSOLUTE AUCTION (or Auction Without Reservation) – The property is sold to the highest bidder, regardless of the price. The main advantage of an absolute auction is that it generates maximum response from the marketplace. Since a sale is guaranteed regardless of the price, buyer excitement and participation are heightened. Because this type of auction generates an ideal response, many estate properties, financial institutions, and government agencies have begun to use this method more frequently. Despite the fact that this type of sale attracts a larger number of buyers and higher bids, the guaranteed sale at the highest bid, regardless of price, often makes a seller feel nervous and at risk. However, it often brings the highest bid due to the strong number of bidders it generates.

MINIMUM BID – The auctioneer will accept bids at or above a disclosed price. The minimum price is always stated in the brochure, advertisements, and announced at the auction. An alternative approach is to post a suggested opening bid, but that opening bid does not commit the owner to sell at that price. An advantage of selling via the minimum bid method is that it creates a safety net for the seller that does not exist in the Absolute Auction method. The seller's risk is limited because the property will sell above a minimum acceptable level. Disadvantages include limiting interest to buyers willing to pay the minimum bid price and making it more difficult to generate excitement.

AUCTION WITH RESERVATION – A minimum bid may or may not be posted, 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 its conclusion. The owner predetermines the price at which the property will be sold. The advantage is that the seller is not obligated to accept a price that is not satisfactory. The drawback is that many prospective buyers do not want to invest the time and expense of investigating property when they have no certainty they will obtain it, even if they are the highest bidder. The high bid becomes, in effect, an offer rather than a sale.

DUAL BID METHOD – Sealed bids are taken, and then the highest bid becomes the opening bid at an open outcry auction. The advantage of this method is that the seller can gauge the market and interest in the property and adjust expectations accordingly.

A buyer's premium is an additional charge to the purchaser of the property. It is usually expressed as a percentage of the high bid. The typical buyer's premium in a real estate auction is 2% to 15%. You should refer to the terms and conditions of the specific auction to determine the amount of the buyer's premium. Prospective buyers must consider the impact of the buyer's premium when deciding how much to bid.

Buyers come prepared to buy. Lookers are eliminated because bidders often must qualify through a deposit of a certified or cashier's check. There is a sense of immediacy at an auction. Buyers feel that if all the properties are sold before the auction ends, it represents their last chance to purchase a desired property. Sellers get maximum exposure for their properties. The Auction Marketing Strategy differs from conventional advertising because it is more concentrated, more intense, and more visible. High carrying costs are avoided. Through auctions, the seller is in control and knows that, if properly priced, the property will sell on a certain date, usually within 45 to 60 days from the auction listing. By selling quickly, the seller avoids high carrying costs such as insurance, real estate taxes, security, and maintenance and is able to reinvest the money in other real estate or investment opportunities.

The buyer knows the seller is fully committed to sell. Auction agreements obligate the seller to transfer title to the highest bidder in an absolute auction, or to the highest bidder who meets or exceeds the reserve price in a non-absolute offering. The buyer knows he or she is getting the property at fair market value. Buyers also gain confidence knowing that others were willing to pay approximately the same amount. In addition, buyers can compare multiple properties at the same place and time, making market comparisons quickly and easily.