Auctions Are Often Thought of as "Fire Sales" For Properties in Distress. Is this True?
Until recently, real estate auctions, unlike art and antique auctions, have experienced unfounded negative images in the marketplace. The majority of auctions today don't result from foreclosure of distress situations, but rather are the result of a seller choosing a cost-effective, accelerate method to sell a property. Builders or financial institutions, for example, prefer auction rather than laboring for months or years to sell units of a development one by one. Auction allows the seller to eliminate virtually all long-term carrying costs, passing the savings directly to the purchaser in the form of a reduced price. Auction is truly a win-win situation: sellers obtain immediate cash and buyers purchase properties at fair market value, the price determined by open, competitive bidding.
What Factors Impact the Success of an Auction?
- The seller must have realistic expectations, including a fair sales price, terms and timing.
- The desirability of the property. This includes location, conditions, plus the value of surrounding properties.
- Since a variety of auction methods are available, carefully choose the auction type that best suits the property and the seller's needs.
- A well planned, aggressive marketing/advertising campaign targeted to prospective purchasers is critical to an auction's success.
- Using a recognized real estate auction company or a REALTOR® auctioneer to ensure the auction is conducted in a professional manner and followed-up through closing.
- Making sure that due diligence information is provided to prospective buyers AHEAD OF TIME.
- Preparing the property for sale so it is presented to prospects in its best condition. (i.e.., title insurance, clean-up, financing, etc...)
What Properties are Suited for Auction? Ever wonder how you can tell if a property is well suited to auction? Think of your listing, then take the Two-Thirds Rule test!
- What properties are suitable for Auction?
- Most properties are salable by auction. All types of real estate, including residential property (e.g., town homes, condominiums, cooperative apartments and single-family homes), commercial and industrial property, vacant land and even boat slips are sold at auction. Not all property, however, is suited for auction. If a property will only appeal to a narrow market, auction may not be the most effective marketing method.
An Auction Self-Test: The Two-Thirds Rule
One method to determine if auction is the best marketing strategy is the Two-Thirds Rule. This involves analysis of the market, property and seller situation. Generally, if two of the three parts (market, seller, property) lean towards auction, then auction should be offered to the seller as a sales option.
Market (Buyers) -- A good auction situation is one where the market is:
- A changing market
- A dull market; too much product but buyer interest is expressed
- Not enough of the property type (unique, lake front, etc.)
- An emerging market -- new developments could kick off a sales program, once some of the properties were auctioned
- A seller's market where there is known high demand and a lot of competition can take place
Seller -- A good auction situation is one where the seller:
- Needs immediate cash
- Has a partnership or marriage break-up
- Is moving out of the state
- Wants to liquidate an estate
- Is retiring
- Is an auction-minded seller
- Has a listing that is about to expire
- Has already purchased another house
- Knows the auction will bring a fair market price
- Has financial problems
- Has high carrying costs on the property
Property -- A good auction property is one that:
- Has a lot of equity (25 percent or more)
- Is unique -- there is enough buyer/market interest to encourage competition (unique properties are difficult to appraise)
- Has a lot of high carrying costs for the owner
- Is vacant -- vacant properties may encourage vandalism
- Is difficult to appraise
NOTE: For more information on real estate auctions, contact the NATIONAL ASSOCIATION OF REALTORS® Auction Dept. at 312.329.8495 or
Robert B. McArtor, info@harfordadvantage.com
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