Frequently Asked Questions About Real Estate Auctions
Q. What Is A Real Estate Auction?
A. A real estate auction is an innovative and effective method of selling real estate. It is an intense, accelerated real estate marketing process that involves the public sale of any property -- most certainly including those that are non-distressed -- through open, competitive bidding.
Q. What Are the Benefits of a Real Estate Auction?
A. 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 assurance of watching the property's true market value emerge as the bidding process progresses. For buyer and seller, fair market value for the property prevails.
Q. Are All Properties Suitable For Auction?
A. Most properties, but certainly not all, are saleable by auction. Residential property including town homes, condominiums, cooperative apartments and single family homes, commercial property, vacant land, 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: 1) know the market and 2) analyze the property and/or development closely to ensure success for both the buyer and seller.
Q. If The Property Doesn't Sell At Auction Is It Still Possible To Market It?
A. 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.
Q. Can I Be Sure Of Getting A Fair Price?
A. The only genuine measure of 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 value of real estate, at any given time, is what it will bring under competitive bidding from informed and motivated buyers.
Q. Don't Real Estate Auctions Depress Home Values?
A. 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.
Q. Real Estate Auctions Are Often Thought Of As A "Fire Sale" For Someone Who Cannot Meet Their Mortgage Payments. Is This True?
A. 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 the smart seller, usually a builder, fine estate home or financial institution, who chooses the cost effective, accelerated method 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 saving are passed along directly to the purchaser. It is truly a win-win situation. Property owner can move on with their lives, developers can move to their next project, and
buyers can purchase quality properties at fair market value.
Q. What Factors Determine The Success At An Auction?
A. The desirability of the property being sold. This includes location, condition and surrounding properties. An aggressive marketing and advertising plan are to prospective purchasers. Realistic expectations on the part of the seller. Selecting type of auction that best suits the property and seller's needs. Conduction of the auction in a professional manner and following through closing. Undertaking due diligence beforehand so buyers are knowledgeable. The only issue that remains is price.
Q. How Are Properties Advertised For Auction?
A. This varies greatly depending on the type and value of the property being sold. One essential key 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's needed to be reached. That budget is then broken down into various forms of advertising that will best target market for that auction.
The various forms of advertising are used as needed to procure buyers to purchase the property. These may include mailed directly to prospective purchasers and posted in public places,
marketing tonewspaper advertising in local and possibly regional or national papers, ads in trade journals and magazines, radio ads, signs posted on the property and internet ads and phone
solicitation. A qualified and experience 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 desired forms. The aggressive advertising hits large groups of buyers that will come and competitively bid on property thereby yielding true fair market value for a
Q. How Long Does It Take To Market The Property, Have The Auction and Close The Sale?
A. The time frame varies depending upon the type of property auctioned. Generally, the process can take 45 to 60 days from listing to closing, but can be accelerated if the situation, market and conditions are right. The auction itself may take anywhere from twenty minutes on a single property to all day on a multi-property auction.
Q. What Terms Does A Property Sell At Auction And Who Sets The Terms?
A. 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 set amount) and enters into a purchase contract immediately following the auction; the balance of the purchases price is due within 30 to 60 days at the closing. 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.
Q. What Happens To The Earnest Money If A Buyer Decides At A Later Date Not To Buy The Property?
A. 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 higher 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 deposited will be refunded.
Q. How Much Does An Auction Cost?
A. Auctioneers, like other licensed and real estate professionals charge a commission, and a percentage of the sale price. In addition, the out-of-pocket expenses relating to the marketing and promotion as well the conduct of the auction are paid by the seller upfront and in some cases refunded to the seller from fund brought in by the "Buyers Premium.”
Q. What Are The Various Methods Of Auctioning?
A. Essentially, there are three different types of auctions:
1) ABSOLUTE AUCTION (or auction without a Reserve) - Properties sold at this type of auction are sold to the highest bidder, regardless of the price. The main advantage of an absolute auction is that it generates maximum response from the market place. 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 in greater frequency. Despite the fact this type of sale attracts a larger number of buyers and high bid offers, the guarantee sale at the highest bid, regardless of price, often makes a seller feel nervous and at risk, it often brings the highest bid due to the strong number of bidders this method generates.
2) MINIMUM BID - The auctioneer will accept bids at or above a disclosed price. The minimum price is always stated in the brochure, in the advertisements and is announced at the auctions. An alternative approach is to post a suggested "opening bid", but that opening bid does not commit the seller to sell at that price. An advantage to selling via the minimum bid method is that it creates a safety net for the seller that does not exist in the Absolute method. The seller's risk is limited in that the price that the property sells for will fall above a minimum acceptable level. Disadvantages to this method are that the seller limits interest in the auction to only those buyers who are willing to pay the minimum bid price and the fact that there is minimum bid makes it difficult to generate the proper excitement.
3) AUCTION WITH A RESERVE - The auctioneer may or may not post or otherwise advertise a minimum bid, 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's conclusion. The owner predetermines the price at which the property will be sold. Obviously, the advantage is that the seller is not obliged to accept a price other than one that is entirely acceptable. The main drawback of such an auction is that many prospective buyers do not want to invest the time and expense of investigating property when they have no certainly they will get the property even if they are the high bidder. The high bid is reduced, in effect, to an offer, not a sale.
Sealed bids can be taken prior to the auction and that sealed bid then become the opening bid at an open outcry auction. The advantage of this method is that the seller can gauge the market
and interest on their property and make adjustments up or down in their expectations.
Q. What is A Buyer's Premium?
A. A Buyer's Premium is an additional charge to the purchaser of the property. It is usually expressed in the form of a percentage of the high bid. The typical buyer's premium in a real estate auction is 8% to 15%. You need to refer to the terms and conditions of each specific auction to ascertain the amount of the buyer's premium. You/r prospective buyer must consider the impact of the buyer's premium when deciding on the amount to bid for the property. The Buyer's Premium is an amount added to the high bid and incorporated into the total selling price. The amount of the Buyer's Premium is announced prior to each auction sale.
Q. What Are The Advantages To The Seller In An Auction Situation?
A. Buyers come prepared to buy. Lookers are eliminated because most often bidders must qualify through a deposit of certified or cashier's check. There is a sense of immediacy an auction. Buyers feel that if all the properties are sold before the auction ends it represents their last chance purchase a desired property. Sellers get maximum exposure for their properties.
The Auction Marketing strategy differs from the conventional advertising. It is more concentrated, therefore more intense and 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, which is usually within 45-90 days from the auction listing. By selling quickly, the seller is able to avoid high carrying cost such as insurance, real estate taxes, security and maintenance and is also able to benefit from the use of the monies to reinvest in other real estate or investment opportunities elsewhere.
Q. What Are The Advantages To The Buyer In An Auction Situation?
A. 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; the auction agreement obliges the seller to transfer title to the highest bidder that meets or exceeds the reserve price in a non-absolute offering. The buyer knows he is getting the property at fair market price. The buyer feels comfortable with the purchase knowing that others would have been willing to pay about the same amount for the property as the bid. The buyer sees may offerings in the same place at the same time and is able to make market comparisons quickly and easily.
Q. How Can I Participate In This Real Estate Auction?
A. To be eligible to bid, a potential buyer must register with our office either prior to the auction or the day of the auction. You should do this online on the particular auction page of the property you wish to bid on. All bidders must post a pre-determined amount of money in the form of a certified or cashier's check. Contact our office for the amount of the deposit, as each auction sale is different. If you are not the successful bidder, your check will be returned. If you are the high bidder, your check becomes your deposit; you sign an agreement of sale incorporating the auction terms.
Q. Does The Owner Have To Take The Highest Bid That Day?
A. It depends. Almost all of our real estate auction sales have "reserve" numbers that are determined by the seller. The reserve number is not disclosed before the auction. If the high bid the day of the sale exceed the seller's reserve number, then it is automatically "confirmed" and the buyer must proceed to the closing. If the high bid does not meet the seller's reserve number, the seller has 24 - 72 hours to decide whether to accept the lower number.
Q. What Is Meant By "Suggested Opening Bid?"
A. The suggested opening bid is the number that the auctioneer considers a fair starting point for the oral auction. The suggested opening bid is not the seller's "reserve" number.
Q. If I Am The High Bidder, Is My Bid Contingent Upon Me Obtaining a Mortgage?
A. Not typically. Real estate auction sales are not usually contingent upon the buyer obtaining financing (or any other contingencies for that matter). For most of our auctions, buyers are pre-approved by a mortgage banker, mortgage broker or bank and know that they qualify for such a purchase. If you are not paying cash for the real estate, you will need to bring your pre-approval letter with you when you arrive at the auction. Should the buyer not be able to obtain financing and not close on the property, they forfeit the deposit money. Contact your lender/bank with any financing questions.
Q. If I Am The High Bidder, Is My Bid Contingent Upon Any Inspections?
A. Generally no. Our real estate auctions are "As Is, Where Is, With No Warranties Expressed or Implied." We will make the property available for viewing shortly before the auction. If you want to bid on a home but only if it is with an inspection contingency, please contact our office in advance of the auction date. In rare cases, the seller may make the decision to allow certain inspection.
Q. Can I Purchase An Auction Property Prior To The Auction?
A. Absolutely. If a buyer makes an offer prior to the auction sale and it is a price acceptable to the seller, the seller can decide to sign an agreement of sale and the auction will be canceled. This is a common occurrence and not out of the ordinary. The buyer in this situation can attach certain contingencies to the agreement of sale. Contact our office for details.
Q. Can An Auction Help Sell My Property?
A. In many situations, an auction can accelerate the sale of your property by utilizing a time definite sale date with an aggressive accelerated marketing campaign.
Q. Would An Auction Help Sell My Property Quickly?
A. A typical auction campaign runs 90 days or less and closes within 30-45 days. Auctions are often referred to as accelerated marketing programs. One of the main benefits of an auction program is the reduced holding costs of a quick sale. A quick sale and closing also requires a quick move out by the seller.
Q. Can I Auction My Property If It Is Listed With A Broker?
A. In most cases, yes. We recommend you talk to your broker about utilizing an auction to sell your property. A motivated broker can be very helpful with the auction campaign. Remember, your Broker doesn't earn a commission until he sells your property. If your listing is nearing its end, your Broker should be exploring methods to accelerate the sale and earn that commission. Some brokers are not able to work with auctioneers due to their E&O policies.
Q. How Do I Choose An Auction Company?
A. The value and location of your property will be among the largest determining factors in choosing an auction method and company. With auction companies coming in all shapes and sizes, from the Trophy Auctioneer specializing in the Luxury Market to the Local Auction Company that does it all, hiring an auction specialist can be a daunting task. A professional auction consultant can assist you in choosing the auction method that fits your needs at little or no cost to you. LaCount Auctions LLC has over 30 years of eperience in real estate auctions, and has a qualified, caring team in place to ensure you are taken care of throughout the process.
Q. What Are The Terms In A Typical Auction Contract?
A. The property is usually sold as-is, where-is, with all faults and NO contingencies in the contract. Most sellers have a reserve requirement. The closing date is typically within 30 days after the auction. Serious buyers must bring 10% cash deposit along with a letter of proof of funds to bid on the day of the auction. Due to the intricacies involved in real estate laws, all sellers and buyers are encouraged to consult a licensed and experienced real estate professional to assist them in the preparation of their terms and conditions of sale and contract documents. Upon request, we will have a licensed Broker (other than broker Col. Dave LaCount to avoid conflict of interest issues) on hand to assist buyers with their contract needs.
Q. How Does A Buyer View And/Or Inspect The Property?
A. A prospective buyer should have ample opportunity to view and/or inspect the property prior to auction. We will hold an "Open House" just prior to the auction starting. Please contact our office with questions.
Q. Should I Fix-Up My Property Prior To Listing It For Auction?
A. When selling any real estate, improving the eye-appeal and condition of your property prior to the auction can be to your advantage, depending on costs. Remember, if you are selling your property "As-Is", you will still be providing sellers disclosures of the property condition on a Wisconsin state form Real Estate Condition Report.
To arrange a consultation or for additional information please call LaCount Auctions LLC at 920-621-4834 or email email@example.com for a prompt response.