Auction: The Basics & Benefits
Let’s Not Talk Price
Looking for information about real estate auctions? Read this entry and search for others! Included in this entry:
- What is a Real Estate Auction?
- How will auction benefit me?
- Benefits to the Seller
- Benefits for the Real Estate Agent/Broker
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 cry, competitive bidding.
Q. How will auction benefit me?
A. The real estate auction is a win-win proposition for everyone involved.
BENEFITS TO THE BUYER:
* Buyers know that the vendor has had, as part of the auction process, the benefit of real market feed back on what the market perceives the value of their property to be.
* Smart investments are made as properties are usually purchased at fair market value through competitive bidding
* The buyer knows the vendor is committed to sell
* In multi-property auctions the buyer sees many offerings in the same place at the same time
* Buyers determine their purchase price
* Auctions eliminate long negotiation periods
* Auctions reduce time to purchase property
* Purchasing and closing dates are known
* Buyers know they are competing fairly and on the same terms as all other buyers.
BENIFITS TO THE AGENT:
Despite the extra effort required on behalf of the sales person, if there is an overriding motivation on the part of the vendor to have their property sold within a fixed time-frame, then a professional agent ought to recommend the auction method of sale as an available option. Agencies are, after all, commission driven and the possibility of a sale is much higher with an auction property as a direct result of the sales person’s focussed energy.
Those agents that recommend this option understand the importance of market perception and advertising; an auction provides the vendor and their agent complete control over the marketing.
A property sold at auction gives the market a real-time snapshop of property values on the day; this information is invaluable for gauging market trends, which is the basis of a professional sales person’s knowledge.
The Ins and Outs of Auctions
Real Estate Auctions
A sale by public auction is arguably one of the most exciting, effective and rewarding methods of buying and selling real property and is seen by many as the ultimate indication of the true value of the property on the day. A professional Real Estate agency will always offer this method as it is the most transparent form of negotiation available.
The Ins and Outs of Auctions
The auction process can be a little unnerving for sellers and a little daunting for buyers. So how do agents decide when a property is best suited to auction and what are the key factors for all parties to consider?
What is the benefit to the seller of an auction versus sale by private treaty?
A well executed auction decides the market value of a property and gives Vendor’s confidence that they have achieved the best price. No one wants to undersell their property and auctions are designed to confirm the best market price. They can also attract buyers who otherwise may have been turned away by what they perceive to be an unrealistically high initial listing price. With auctions those potential buyers actually get involved in the process. It is also an unconditional sale, so it eliminates the chance of a contract falling through.
How do you decide when a seller will benefit more from an auction?
All properties can suit sale by auction – particularly unique or highly desirable properties. But not all agents suit auctions. They can take a lot of work, partly because there is no price. No price means that people can’t as easily judge the property just on photos and a description online. The process is the most transparent form of sale and the Vendor remains in control through out. Auctions leave the job of selling to the agent and pricing to the buyer.
What are the factors for success?
Choosing the right agent is essential and the property must be marketed well. The auction process is effectively taking a market survey on the property. The value of the outcome is influenced by how many you survey. The work that goes into the auction beforehand will dictate what happens on the day – getting offers, generating interest and helping the sellers get a feel for the market value of their property.
So for buyers, how do you buy at an auction?
The immediate hurdle is the ‘no price’ factor. Buyers need to do their research by looking at recent sales in the area and similar properties. They also need to turn up with a clear idea in their mind of how much they are prepared to spend.
When it comes to making an offer, buyers don’t enjoy blind negotiations (a Dutch auction) where they don’t know their competition. The advantage of auctions is that buyers can see each other and the other offers and make an educated judgment as to whether they will bid again or walk away. Finally, the terms and conditions of an auction is that it is an unconditional contract so buyers should also consider a building inspection prior to the auction. The benefit is that most sellers will take a discount for the unconditional terms. By bidding you can buy well.
Caillard & Kaddour Real Estate will conduct auctions during the year to meet the needs of its clients both at home and those overseas.
Caillard & Kaddour favour the in-rooms presentation, but with the Auctioneer’s approval are not adverse to the on-site option.
Please contact us for more information.
Buying Property at Real Estate Auctions
The auction system is a very popular method of buying a property. This brochure has been designed to advise prospective buyers at auction on how to prepare for and then go about bidding confidently.
Standard Terms and Variations
There are certain standard terms & conditions incorporated into contracts of purchase by auction. The usual terms require a 10% deposit and a 30-day settlement etc. The standard terms may be renegotiated with the auctioneer prior to the day of auction. Such variations must be recorded in writing and would apply if you were the successful bidder.
Conditions of Sale by Public Auction for Leasehold Property
- The highest approved bidder as indicated by the Auctioneer will be the buyer subject to:
· the reserve price; and
· the seller's approval.
- The seller may bid, either personally or by a representative. The bidder warrants their ability to enter and complete the contract of sale in accordance with its terms.
- Any person bidding on behalf of another person must provide the Auctioneer with a copy of their written authority before the auction; otherwise the bidder will be taken to be acting on their own behalf.
- The Auctioneer has the discretion to refuse to accept any bid from any person. A bid will be taken to be accepted and irrevocable unless the Auctioneer, immediately after it is made, refuses it.
- The decision of the Auctioneer is final in all matters relating to the auction and no bidder has any right of recourse against the Auctioneer or the seller.
- Without affecting condition above, if there is any dispute over a bid, the Auctioneer may:
· re-open the bidding and resubmit the property for sale starting with the highest bid previously accepted; or
· determine the dispute in any other way the Auctioneer considers appropriate in his/her absolute discretion
- Immediately on the fall of the hammer and the auctioneer announces to the public “SOLD”, the bidder of the highest bid accepted must sign, as buyer, the Contract of Sale in the form displayed or circulated with these conditions of sale and pay the deposit to the nominated stakeholder.
- The deposit payable under the Contract of Sale is 10% of the successful bid or any other percentage or figure nominated in the Contract of Sale.
- The Seller and the Buyer agree to do all necessary acts and to sign all documents and papers for the purpose of transferring the Property to the Buyer.
- The conditions then to apply are as contained in the Contract of Sale that has been on display prior to Auction. We draw bidders attention to the fact that there is no finance clause and no inspection clause included in the Contract of Sale; however all Contracts will be conditional upon the Consent of the Lessor on Title.
- If the buyer does not pay the deposit, at the seller's option:
· the result of the auction will be treated as invalid and the property may be resubmitted to public auction at the risk and expense of bidder; or
· the seller may affirm the Contract of Sale and pursue their legal and other remedies against the buyer as they see fit.
Other special conditions may apply.
Contract for Sale
Based on these conditions of sale, the vendors selling agent prepares the contract of sale. You may choose to have your solicitor inspect the Contract of Sale, which will be held by the agent. This document is available three consecutive business days prior to auction. Make sure that you have a clear understanding of exactly what is to be included in the sale. All fittings, furniture and other items to be included should be clearly itemised. If you have any doubts speak to the agent prior to auction.
· VAT Registration: At the auction the following announcement will be made in clear terms.
· The property is offered for sale on a VAT inclusive basis in the case of commercial, which means the knock down price is the sale price.
· The property is offered for sale on a VAT exclusive basis, which means, should the property be commercial; the knock down price attracts VAT at 12.5% of the selling price. (Registered VAT Seller).
· Inspecting The Property: Inspections of the property before the auction are usually conducted in the company of an agent who will know the features of the property and be familiar with all the facilities in the local area. Viewing times will be specified, giving all interested parties equal opportunity to inspect the property before the auction. Inspection at other times by appointment with the agent may be arranged.
· Finance: Should finance be required to purchase the property you must have this approved prior to the Auction. Make contact with your bank, building society or other lending body before you attend the auction. Explain that the property you are interested in is to be submitted to auction and ask them to process your application for finance urgently.
· Registration of Interest: It is important that you speak to the selling agent and register your interest in the property. It may be that the vendors wish to consider an offer prior to auction and this will allow the agent to notify you, so that you may be given an opportunity to enter in to negotiations for the property.
· Reserve Price: Unless advertised otherwise, all properties are subject to a "reserve price". This is the price that the vendor will be prepared to accept for the property. The auctioneer has no authority to sell under the reserve price, however should the reserve price is equaled or exceeded; the property is "on the market" and can be sold to the highest bidder on the fall of the hammer. When the property is sold under the hammer at auction, the highest bidder is required to sign the Contract of Sale and pay a deposit. It is important to remember that when you buy a property at auction there is no finance or inspection clause that would normally be available should the purchase be by private treaty. However all Contracts will be conditional upon the Consent of the Lessor on Title.
· Price: The reserve price is generally set just prior to the auction and is confidential. In establishing a price range you should check out what similar properties in the same area have sold for. The lending institution may give an opinion of value, the vendor may have had an independent valuation carried out, or you may engage a qualified valuer to complete a formal valuation.
· Other Considerations: To know exactly what you are buying, you may consider having the property inspected by a professional. Licensed building inspectors, architects, pest exterminators etc are available and may be found in the Directory.
Bidding at Auction
To better understand the basic auction procedures it is a good idea to do your home work. A good appreciation of the process it could save you millions. Always make sure you check the scheduled time and place for the auction and make sure you are punctual. When attending the auction do not hesitate to seek advice or information from the auctioneer or other staff. If you feel uncomfortable with the idea of bidding on the day of the auction, ask for assistance from a real estate professional to act on your behalf; don’t forget to register them with the auctioneer.
When the property is knocked down to you as the successful bidder, you are required to sign the Contract for Sale immediately and pay the auctioneer the deposit. This is 10% of the purchase price. If you do not have a cheque account or there is no time to place the deposit into your solicitors or the agents trust account, then talk to the agent prior to the auction to determine in which other way the deposit can be paid. Should the highest bid be below the reserve price the property will be passed in. The person making the highest bid will normally have the first opportunity to negotiate with the vendor for the property. Should no agreement be reached then the property will be placed back on the market under the terms of a sale by negotiation. It’s not unusual for the auctioneer to go back to those who have shown an interest and invite them to make an offer outside the conditions of the auction.
Bear in mind when attending an auction that your bid may not be successful. However you may still incur some cost, inspection and valuation fees, and possibly fees from your lending body. Like all services, some of these fees may be negotiable when you utilise these services.
To bid at an auction:
· Attract the auctioneer's attention by raising your numbered paddle, which will be supplied at registration.
· Don't hesitate to indicate your interest when the auction starts and the auctioneer calls for your bids. Your bid does not have to be the amount nominated by the auctioneer, although it is at the auctioneer's discretion as to whether or not to accept a bid.
· Don't leave your bidding until the last moment - you may just miss the property. Remember, subject to the reserve price, when the hammer falls the highest bidder is the purchaser.
· Remain calm and remember your finance limits at all times.
A sale by public auction is arguably one of the most exciting, effective and rewarding methods of buying and selling real property and seen by many as the ultimate indication of value of the auctioned property on the day.
Selling Before The Day Of The Auction:
It is not uncommon for interested buyers to make offers prior to auction day and is considered an important part of the process. Of course, some will be on fishing expeditions to try and find out the reserve. However, most will be genuine and in such cases the agent will discuss the offer with the seller. A decision can be made to accept, consider the offer, or continue with the auction as planned.
It is not unheard of for the vendor to sell the property prior to going to auction, in this case the agent will generally, on the vendor's instructions, invite all potential buyers to also make their best offer in writing. The seller then accepts the most appropriate offer, and contracts are signed prior to the auction date.
Produced Caillard & Kaddour as a community service this letter addresses many of questions most ask about the auction process. Please use the information provided in this document as a prompt for further discussion with your agent.
Find out more on how the auction method of sale can benifit you. Should you have any questions contact an expert.