What About Selling Real Estate at Auction?
From 2004 to 2005, residential real estate auction sales grew 8.4 percent
(EMAILWIRE.COM, September 29, 2006 ) By Frank T. Pietrzak -- Pleasant Valley, NY -- Property owners have many decisions to make when planning to sell their assets. One option more sellers are choosing these days is the auction method. In fact, according to an ongoing MORPACE International study commissioned by the National Auctioneers Association, revenue increases in all three primary real estate auction categories were reported for last year.
From 2004 to 2005, residential real estate auction sales grew 8.4 percent, land and agricultural auctions grew 7.0 percent, and commercial and industrial auctions grew 4.9 percent. Residential real estate is still on the rise, increasing 4.4 percent for the first half of 2006, with no signs of a slowdown.
As a result of this steady growth, real estate has become a sizeable source of revenue for the auctioneering industry. According to the MORPACE study, between 2003 and 2005, real estate auctions comprised 22.3 percent of total revenue, second only to automobile auctions, which comprised 37.8 percent of total revenue. According to Susan A. Doyle, principle broker of Absolute Auctions and Realty, Inc. (AAR) of Pleasant Valley, New York, which brokers the largest number of real estate auctions in New York State each year, “I see this percentage rising even more in the near future. Our offices have received an increasing number of phone calls over the past few months from property owners looking to sell via the auction method. These people are informed, prepared, and motivated to sell.”
What is it about the auction method that attracts so many sellers? The most obvious benefit is the “no commission” guarantee offered by many auctioneers. By earning their profit on the buyer side of the transaction via a “buyer’s premium,” the auctioneer is able to offer their client a no-commission sale. A buyer’s premium is a percentage of the high bid (often 10%) that is added onto the high bid once the bidding ends. The high bid plus the buyer’s premium then becomes the official sale price of the property.
The other highly attractive feature for sellers is the no-contingencies contract. Both the seller and the buyer execute the contract immediately after the auction. This, coupled with the fact that the buyer has already posted a first downpayment with the Auctioneer during registration and will fund a second downpayment within 48 hours of the auction, gives the seller peace of mind that the sale will proceed efficiently, free from the last-minute negotiations that typically delay a sale. Conversely, the buyer is guaranteed a property “free of liens and encumbrances” at closing. Once the contract is executed, the closing process is the same for auction as it is for private-treaty brokering, except that the auction closing timeframe is considerably shorter, usually 60 days or less. What differs most between auction and private-treaty is the method of arriving at the purchase price.
This difference in methodology emphasizes a benefit unique to the auction process—the opportunity to have all interested players competing at the same time. “The average real estate auction takes about six minutes—it’s pretty hard to beat that level of intensity,” notes Robert A. Doyle, AAR’s principle auctioneer. “It’s also mutually beneficial for sellers and buyers. Sellers know their property will sell on a specific date at a specific time, and buyers don’t have to guess at how much to offer. They simply bid one increment higher than the last person, and once the bidding stops, the highest bidder has arrived at the fair market value for that property on that day. It’s really the purest form of free enterprise.”
Once a property owner has decided to sell at auction, he or she usually chooses one of two formats: a “subject to confirmation” auction, in which the seller sets a “reserve” to establish a minimum selling price, or an “absolute” auction, in which the property is offered to the highest bidder regardless of price. Though it seems an absolute auction would be disadvantageous to a seller, Susan Doyle explains, “In reality, it tends to draw a large crowd looking for a ‘steal.’ That’s an ideal atmosphere for our client, because bidders compete more enthusiastically when a property is selling ‘absolute.’ At the end of the day, the seriously interested buyers who have done their homework will always ensure market value is reached.”
The best candidates for real estate auction are motivated sellers who owe less on their property than what the current market is expected to pay. Of course, condition, location and amenities are also significant factors. On the other side of the transaction, the ideal buyer is one who prequalifies for financing, reviews all of the property information provided by the auctioneer, has all third-party testing done prior to auction, and is prepared to fund the downpayments in accordance with the terms of the auction.
In the end, real estate at auction is appealing because it is a win-win opportunity for sellers and buyers. The condensed timeframe, the no-contingencies contract and the assurance of fair market value create an environment of temporal and financial efficiency that benefits everyone involved.
Published by ASMarketingCenter.com a division of http://www.auctionservices.com and the http://www.nationalauctionlist.com.