Apr 01, 2021
There are a lot of myths about real estate auctions. In this article we address eleven common myths we encounter. Read on to learn why a real estate auction might be the best way for you to sell your home or property.
Call 816-361-2600 or email us to learn how a real estate auction is the best way to sell your property. Our real estate auction page has more details on the real estate auction process.
Estimated Reading Time: 11 minutes
Not all real estate auction companies use the same auction terms and conditions. If you are a buyer who is interested in buying real estate at auction, be certain you have a complete understanding of the terms and conditions of the specific real estate auction you will be participating in.
Most real estate auction companies will require a deposit for the real estate auction. In some cases, the deposit may be required to register and participate in the real estate auction. In other cases, the deposit will be due immediately following being declared the winning bidder.
The deposit will usually be a predetermined amount, or a percentage of the total contract price.
While the majority of real estate that is sold at auction is sold with no contingency on financing or inspections, most real estate auctions will allow 30 to 45 days to close on the property. This allows for most buyers to utilize financing and purchase a property at auction without having to have the entire amount in cash on auction day.
However, because the real estate purchase agreement will have no contingency for a buyers financing, it is important for real estate buyer to complete all of their due diligence prior to bidding in the auction. It is the buyer’s responsibility to ensure they will be able to close on the property within the timeline stated within the terms and conditions.
All types of properties are sold at auction.
While it is true that financial institutions regularly hire real estate auction companies to successfully sell their bank owned (foreclosed) properties, all types of real estate sellers recognize the benefit of selling their real estate at auction.
Savvy real estate sellers regularly choose real estate auctions to market and sell their properties. Everything from modest single-family homes to luxury homes, commercial real estate and land.
Real estate auction sellers recognize the advantages of selling their property at auction in all types of market conditions. In a hot market, a real estate auction maximizes the competition. Multiple offers from competing buyers helps to ensure the seller gets top dollar for their property in a timely manner.
In a down market, when inventory exceeds the demand, a real estate auction puts the seller’s property in a time defined process. Qualified buyers are focused exclusively on the auction property before making a decision on the many other properties available.
Every property has a value based on what ready and able buyers are willing to pay for the property on a given day. Because buyers determine market value, the asking or list price has very little to do with that determination.
In a conventional method of selling real estate, if a property is listed too high, some buyers will not look at the property because they believe the seller will not be willing to accept their opinion of market value. If a property is priced too low, it will usually sell quickly and ultimately the seller will be leaving money on the table.
A successful real estate auction marketing campaign will engage all the ready willing and able buyers for the property during a defined period of time. These buyers will compete against each other for the property. Market value for the property is achieved because competitive bidding ensures buyers will not allow another buyer to purchase the property for less than they are willing to pay. In many instances, record prices are achieved through the competitive bidding auction process.
There are three types of real estate auctions available to sellers: the absolute auction, the minimum published bid auction, and the undisclosed reserve auction.
The first type of real estate auction is an absolute auction. In an absolute real estate auction, the property sells to the highest bidder regardless of price and the seller is contractually obligated to accept the bid once the auction is active and a bid has been placed and received by the auction company. The absolute auction is the purest form of auction and typically ensures the most participation. Not all properties should be sold in this manner and sellers should consult with an experienced real estate auctioneer to understand all of the risks and benefits before choosing this method.
The second type of real estate auction is a minimum published bid auction. In a minimum published bid auction, the property sells at or above a minimum established price. The minimum published bid auction is a popular choice for sellers who want to send a strong message to the marketplace they are willing to sell by establishing a low opening bid amount. The minimum published bid auction allows sellers to have a level of protection in the auction process.
The third type of real estate auction is undisclosed reserve auction. The undisclosed reserve auction is exactly what it sounds like. Real estate sellers, in cooperation with the real estate auction company, can establish a minimum amount they are willing to accept for their property and are not required to sell if the highest bid does not reach the minimum. This type of real estate auction is also referred to as, sold subject to owner confirmation. This method of sale provides the most protection for real estate auction sellers.
This myth is based on the traditions of courthouse step type real estate auctions, commonly referred to as sheriff’s auctions or tax lien sales. In this scenario the owner has a legal remedy to get their property back called a “redemption period.” Each State will have a different time frame for the redemption period.
Most real estate auctions conducted by professional real estate auction companies are not these types of real estate auctions, and redemption periods are not part of the auction processor terms and conditions of the auction.
In fact, most public real estate auctions conducted by a professional real estate auction company will include in the terms and conditions of the auction that the seller will guarantee free and clear title on the property. Title work is performed in the same manner as a conventional real estate transaction.
It is always good to check the terms and conditions of the real estate auction and make sure that you have a clear understanding of what the terms are, and how they will affect you as a buyer.
It is true that one of the primary reasons a Seller will choose a real estate auction to sell their property is the benefit of selling the property “as-is,” without contingency upon inspections.
However, this does not mean that the condition of the property is being hidden from the potential buyers. In fact, a professional real estate auction company will utilize disclosure forms and encourage real estate auction sellers to disclose all known defects or issues with the property.
In addition to full disclosure, a professional real estate auction company will not only give ample opportunity, but also encourage real estate buyers to conduct inspections prior to the real estate auction. This allows the potential buyer to make a determination of value based on their own inspections, or an inspection from a hired professional.
As we learned in myth 4 above, sellers can set a minimum amount or reserve the property must bring before it will sell. In addition to control over the outcome, many real estate sellers choose a real estate auction because they have more control over the process.
The seller decides when the property will sell. The seller sets the terms and conditions of the real estate auction including the deposit amount and closing period. In addition, the real estate auction competitive bidding process eliminates negotiations with buyers.
In most cases the property sells as-is with no contingencies on financing or inspections. Buyers must complete their due diligence prior to bidding and have more invested in purchasing the property. Because of this the real estate auction buyer is more likely to close on the property and is less likely to back out of a real estate purchase agreement.
To put it simply, real estate auctions are open to the public. With the rise and convenience of internet or online bidding, real estate auctions are now more available for anyone to conveniently participate in.
It is true that investors enjoy participating in real estate auctions. However, many, if not most buyers are people who have discovered the property and have an interest in owning it. They may have never participated in a real estate auction previously.
The real estate auction provides an even playing field for all buyers. All buyers submit their bids under the same terms and conditions and within the same bidding deadline. It does not matter if you own one hundred properties, or you are someone looking for a home to live in, the highest bidder is the winner. It is the most fair and transparent way to sell real estate.
All buyers have a right to be represented by a real estate professional. All professional real estate auction companies will provide an opportunity for broker participation in their real estate auctions.
Many professional real estate auction companies are members of their local multiple listing service (MLS) and the terms outlining how an agent can represent their buyer are usually displayed in the property listing info under agent remarks.
If you are a buyer or an agent looking at a real estate auction property, simply call the auction company and let them know your interest.
Real estate auctions work well in both a hot market with lots of inventory and a down market with too much inventory.
When the market is hot, and inventory is low, properties are being sold in days if not hours. While this might seem like it is a good thing, sellers are likely leaving money on the table and not realizing true market value.
If a property is priced too low, multiple offers and above full price offers can make a seller feel good about the selling price. However, if the property is sold utilizing a real estate auction where true competitive bidding maximizes the final selling price, a seller will be less likely to sell too quickly and leave money on the table.
If a property is priced too high in a hot market, some potential buyers will avoid looking at the property and the number of offers will be reduced as a result.
In a down economy or down real estate market, time is money. When properties take more than 30 days to sell, continued holding costs create a lost opportunity cost for the seller. Every day the property does not sell is another day the equity (money) is tied up in a depreciating asset.
The real estate auction is a time defined sale. The real estate seller chooses the day their property sells. This freezes the market on comparable properties in the area. Because inventory is high in this scenario, real estate buyers must decide about the auction property before they will consider making an offer on the other properties.
While this might be true in the past, online bidding has changed the way real estate is bought and sold in a real estate auction. Online real estate auctions have now become common place because of the convenience they offer.
Buyers can bid on properties from anywhere at any time while the auction is open. In addition to being convenient for the buyer, they also provide a level of anonymity. Many buyers prefer to remain anonymous while buying real estate, and an online real estate auction allows a buyer to bid without disclosing their identity to the other bidders.
The days of standing in the yard at 10 am on Saturday morning to bid in a real estate auction have given way to bidding from the sidelines of Sally’s soccer game and never missing out. People value their time more than anything these days, and online real estate auctions are ideal for this reason.
Give us a call at 816-361-2600 or email us.
Our real estate auction page has details on our proven 3-step real estate auction process