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1. What is a real
estate auction?
A real estate auction is a popular way to buy or sell real
estate. The auction process is accomplished through a concentrated,
accelerated marketing campaign.
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2. Why should I buy or sell real
estate through auction?
The real estate auction is beneficial for all parties. For
the seller, the real estate auction is a way to sell property
at an accelerated pace. The inherent efficiency in the auction
process enables the seller to eliminate long-term carrying costs
including maintenance, real estate taxes, and interest. The
resulting competitive bidding atmosphere gives the buyer an
opportunity to purchase property at a price they establish.
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3. What are the elementsthat
determine a successful auction?* A professionally conducted auction
with follow-up through the closing.
- Assertive advertising and marketing to attract prospective
buyers.
- Realistic price expectations by the seller.
- The selection of an auction type that best represents the
needs of the seller and the property being auctioned.
- Ensuring that buyers are knowledgeable.
- Location, condition and surrounding property -- factors that
determine the desirability of a property.
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4. What are the types of auctions?
- Absolute Sale
The absolute sale is the purest, and in many cases, the most
successful form of auction in terms of getting the highest price
for property. With this type of sale, the property is sold regardless
of price. This sends a strong message to the bidding public
that the property will be sold for sure on auction day. Buyers
can justify their time and effort knowing the property will
be sold on auction day at their price. If the buyer feels he
or she can buy the property at their price, then the buyer is
more likely to bid. The buyer also realizes that a bid must
be submitted because the property will be sold on a certain
day and that there is " no tomorrow" to negotiate
with the seller. Through aggressive bidding, true market prices
can be obtained at auction. While the seller has a risk of being
forced to sell the property at a price that is too low, the
advantages of this type of auction far outweigh the risks.
- Reserve Sale
With this type of auction there is no published amount at which
the seller agrees to sell the property. The high bid is subject
to the seller's confirmation typically at the auction or within
48 hours after the auction. This method protects the seller
from selling the property for too low a price. The motivation
for a buyer, once again, is that they may be able to obtain
the property at his or her own price, not the seller's price.
A seller may offer a cash payment or inducement to the highest
bidder if that bid is rejected, which is called a buy back.
This indicates to the bidders that their efforts will be rewarded
if they are the highest bidder and a sale does not occur.
- Minimum Bid Sale
This is a hybrid of the absolute auction and reserve auction.
With the minimum bid offering, the seller determines a minimum
price level above which he is committed to accept. This type
of sale is effective only if the minimum bid is low enough to
stimulate buyer interest. If the minimum bid is too high or
near market value, potential buyers will often be discouraged
from inquiring, inspecting, and therefore buying the property.
Minimum bid levels can be difficult to determine in soft, slow
markets where real value cannot be readily determined. This
method of sale can both attract buyers and protect sellers from
offers that are too low.
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5. What is a buyer's premium?
The buyer's premium, expressed as a percentage of the high
bid, is an additional cost to the purchaser. Ranging from 1%
to 10%, it is the fee the seller charges the bidder to bring
the property to auction. It helps pay for some of the auction
marketing expenses.
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6. In an auction setting, what
are the advantages to the buyer?
- The seller is comitted to selling.
- The property is sold at a fair market price.
- The auction situation translates to negotiating power for
buyers.
- Buyers may have a choice of several properties at once.
- Buyers can set their own purchase price.
- Long negotiation periods are eliminated.
- The time it takes to purchase property is reduced.
- Because purchasing and closing dates are known, buyers do
not need to worry about contingencies.
- Property owners sell at the lowest price possible.
- Financing may be available to buyers.
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7. How should I prepare to bid?
- Attend at least one open house to determine the condition
of the property.
- Examine the property information provided by the auctioneer,
including the sales contract.
- Determine what is included in the sale.
- Understand exactly what you are bidding on and the terms of
sale associated with the auction process.
- Seek the advice of an attorney, auctioneer, real estate broker
or appraiser.
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8. When can I see property being
auctioned?
Rick Levin & Associates, Inc. conducts several open houses
for each property auctioned. They are held between two and four
weeks before the property is scheduled for auction. Visit On
the Block to learn about our currently available properties
and their open house dates and times.
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