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Q. What makes a property right for the auction
method?
A. 1. It must be desirable so there will be more than
one person bidding on it.
2. There needs to be some equity in the property.
3. The seller must have a reasonable expectation of the selling price.
Q. What makes a property desirable?
A. 1. Scarcity
If there are not many properties like the seller's property on the market, that would be a good one for an
auction.
2. Price
On the other hand, if the property is just one of many similar properties on the market, then it would take a lower
price to create the desirability necessary to make an auction work.
Q. What are some examples of desirable properties?
A. Lake homes, building lots, recreational properties,
lower priced homes, executive homes, homes with acreage and multi-family dwellings.
Q. Why would anyone lower their price below the price of other
comparable properties on the market?
A. These are the traditional fire sale properties, or the seller may have some other
unrelated pressure to sell. Q. Why is
equity necessary to make an auction work?
A. Just as in a traditional sale, there must be enough equity to pay off all of the
encumbrances and still have enough money left over to pay the sales commission, or the seller won't likely want to sell. Q.. What is a
reasonable expectation?
A. A reasonable expectation is an expectation of a sales price that is likely to be
bid at the auction. That amount is decided before the auction and put into the auction contract. It is called a "reserve
price." Q. What is the effect of putting a
"reserve price" in the auction contract?
A. The seller will not be required to sell if that reserve price is not met.
Q. Will an auction likely result in a higher
sales price than a traditional listing?
A. Usually not. Auctions aren't magic and cannot create desirability when none
really exists. Q. What happens if the
property doesn't sell at the auction?
A. We then list the property with a new traditional listing agreement or the realtor
who retained us does so. Q. How are
commissions usually paid?
A. The commissions are negotiable, but they are usually paid by the buyer and are
divided between the auctioneer and the listing realtor. Commissions are often paid to a buyer's agent as well. Q. Who pays for the advertising of the auction?
A. The seller usually pays for the advertising and this is described clearly in the
auction contract; however, if the property sells at the auction and closes, AAA Auction usually reimburses the seller
for all for the advertising costs out of it's portion of the sales commission.
Q. So, if a seller has a reasonable sales price expectation and has a desirable
property with equity, why should he or she consider an auction?
A. Because auctions have many benefits over traditional sales, some of which are set
forth below:
1. The buyer usually pays the sales commission.
2. The seller is not required to sell if the bid is too low.
3. The true value of the property is determined by competitive bidding.
4. The seller doesn't have to worry about accepting a bid that turns out
to be too low.
5. Auction sales are quicker than traditional sales thereby avoiding carrying costs.
6. Auction sales are non-contingent so closings are fast.
7. Auction sales are AS-IS.
8. Auctions take the seller out of the negotiation process.
9. Buyers come pre-approved, because they are required to pay a sizeable,
non-refundable down payment on the day of the auction. |
Col. Tony Elfelt, J.D.
Col. Harvey Hazeman
