How Auctions Work

Most properties can be sold at auction. Various types of real estate, including residential property, industrial property, vacant land and commercial property are sold at auction. However, not all property is suited for auction. To best evaluate your property’s candidacy for auction analyze the three primary components: the property, the seller and the real estate market. If it appears that two or more of these components exist, this suggests using real estate auctions.

Property

A good auction property is one that is unique with strong buyer demand or limited supply, has a strong equity position for the owner, has high carrying costs for the property owner, or where the property is difficult to appraise thereby requiring competitive bidding to establish the fair market value of the property.

Seller

A good auction opportunity is one where the property seller is an auction-minded seller that has confidence in their property and knows it will bring a fair market price, the seller has a strong equity position in the property, the seller wants to avoid paying sales commissions, the seller is time sensitive and requires a timely property sale that they control, or the seller has high carrying costs associated with the property.

Market or Buyers

A good auction opportunity is one where the real estate market and/or buyers are changing, where there is a limited supply of your property type with strong buyer demand (ie: water front property), or there is a flat or declining market with little buyer interest for traditional property sales.

The Real Estate Auction Process

A) Evaluate the property to determine if it is a candidate for real estate auction (See “Which Properties Are Suitable?”) - Most properties can be sold at auction. However, not all property is suited for auction.

B) List the property using an auction listing agreement designed for the auction method of marketing real estate. Note, this is a critical distinction.

C) The seller selects the date the auction will be held.

D) The real estate auctioneer develops a marketing plan.

E) The real estate auctioneer executes the marketing plan and markets the property for 3-4 weeks which will maximize property exposure. The marketing effort is designed to create a sense of urgency that requires the buyer community to act on the seller’s time schedule not theirs.

F) Schedule a property viewing. Conduct one or two open houses that are two hours in length. This eliminates numerous and/or unscheduled showings while building a sense of urgency within the buyer community to purchase the property or lose the opportunity.

G) Develop an auction day strategy.

H) Conduct the auction on the day the seller chooses.

• Register the qualified bidders by accepting their certified funds and issuing a bidder’s package and bidder’s number/card.

• Sell the property to the highest bidder.

• Execute a purchase agreement, the day of the sale, that is designed specifically for the sale of real estate at auction.

• Collect a non-refundable 10% down payment from the successful bidder/buyer.

I) Close the sale within thirty days using an escrow company.