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?
- When is the auction proccess the only option?
- Benefits to the Seller, and 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.
Q. When is the auction proccess the only option?
A. Where there is more than one entirety involved in a property and transparency is imperative this includes:
· Partnership Separation
· A Deceased Estate
The auction process is an invaluable tool to bring matters to an amicable conclusion within a fixed time period.
BENEFITS TO THE SELLER:
* Buyers come prepared to buy
* A committed agent; running a successful auction is the panicle of an agent’s profession, involving years of training, these days only the large franchises have the resources to provide the tuition.
* Quick disposal reduces long-term carrying costs, including taxes & maintenance
* Assurance that property will be sold at the true market value on the day
* Exposes the property to a large number of pre-qualified prospects
* Accelerates the sale
* Creates competition among buyers - auction price can exceed the price of a negotiated sale
* Requires potential buyers to pre-qualify for financing
* The seller knows exactly when the property will sell
* Eliminates numerous and unscheduled viewings
* Takes the seller out of the negotiation process
* Ensures an aggressive marketing program that increases interest and visibility
BENEFITS TO THE AGENT:
A good agent will always suggest dispite the extra effort, for consideration, the auction method of sale. Agencies are commission driven and the possibility of a sale is much higher with an auction property.
Those agents that recommend this option understand the importance of market perception and advertising, the auction gives the vendor and thier agent complete control over the marketing.
A property sold at auction gives the market a real time snapshot of property values on the day; this information is invaluable for gauging market trends the basis of a good agent’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.
Selling Property at Real Estate Auctions
Selling by auction is an Exclusive Agency agreement and is subject to a pre-agreed fixed time period. The auction process requires the seller to pay the agent to arrange effective marketing and advertising plans, which will maximise exposure of the property and the auction date to potential buyers.
Under the auction system, the seller agrees to pay commission to the listing agent if the property sells before the date of the auction, at the auction or in an agreed period after the auction.
The same conditions that apply to the auction process will also apply to the tender process.
There are many advantages to selling a property at public auction, in particular:
- An auction is a three pronged marketing push. The vendor has the option to sell the property before auction, on the day of the auction, or in the event the property is passed in, after the auction to those that the process has flushed out.
- There is an ability to set a reserve price and a settlement date to suit the vendor.
- As the reserve price is not disclosed, it gives the vendor a chance to test the market and based on their predicament, the ability to choose their best course of action.
- A written marketing plan agreeing on appointment times enables vendors to arrange their lives in the lead up to the auction.
- The auction process, by its very nature, creates a sense of urgency; buyers have a definite time frame in which they must act. Buyers see other purchasers as competition, rather than the vendor.
- With sale by auction all contracts are unconditional.
The first step is selecting the right person to conduct the auction. Choose someone with local knowledge of the area with the support of an agency that is keen to make a sale, often auction advertising is seen as a way of advertising the agency over the property. This can easily be identified if the auctioneer runs the proceeding to a timetable, the passion for the job has gone and probably any enthusiasm as well, a key ingredient. Auctioneers today are highly trained in their field having attended courses and taken professional examinations, both written and practical.
This is considered by many to be the key to a successful auction, creating interest. The listing agent should have experience in planning and arranging the marketing of property including advertising. The extent of the marketing campaign will depend on the amount the vendor is prepared to spend. The agent has an obligation to clearly explain to the vendor where and how monies will be spent and will show examples of the advertising mix. At this sage the vendor's input is very important to help identify the probable market.
Arriving At A Reserve Price:
It is the vendors right to set the reserve price, below which the auctioneer is not permitted to sell. Consult with your agent when setting the reserve price, as they will be familiar with recent sales in the area. Remember to be realistic when making your appraisal, bearing in mind supply and demand in the area as well as other general market conditions.
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 either 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.
Auction Day: There are a number of possible outcomes at an auction:
- Should the highest bidder reach or exceed the reserve price and the auctioneer has announced publicly that the property is on the market then the property is sold and the auctioneer will conclude a binding contract between the buyer and seller.
- In the event that the highest bid falls short of the reserve price then the auctioneer will usually ask for the seller's instructions before passing the property in. This means the vendor has the opportunity to accept the last bid, by placing the property "on the market" so that it may definitely be sold "under the hammer". This factor often creates more excitement, which can encourage further bidding, and a better price may be achieved.
- It can be that the highest bid does not reach the reserve price and the property is passed in. The highest bidder has the opportunity to treat with the vendor’s agent privately and is generally informed of the reserve price and may be given the initial opportunity to purchase. Failing this, the property is placed on the market for sale by private treaty, at which time anyone may negotiate with the agent.
Tips for a Successful Auction
- Work out the appropriate advertising budget to ensure your property is widely advertised, taking into account the identified market.
- Make sure the property is well presented, because a potential buyer's first impressions are crucial to a successful sale.
- Your agent will require that the contract and the accompanying statutory searches be available well in advance of your marketing campaign. Confer with your agent about this matter they should be able to provide a tick list to help.
- Allow the agent to arrange as many inspections with prospective buyers as possible since it all creates interest, particularly at local level. This will have a significant effect on the day in terms of the turnout.
- For most, the spectacle will be the main draw, as well as the eventual selling price so confidentiality is of the upmost importance. We suggest that you do not disclose or discuss your reserve price with anyone except your agent/auctioneer.
A sale by public auction is arguably one of the most exciting, effective and rewarding methods of buying and selling real property.
Produced by 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.