Frequently Asked Questions about Real Estate Auctions

Who sells at auction?

• Financial Institutions
• Developers
• Investors
• Fortune 500 Companies
• Insurance Companies
• Corporate and Individual Owners

Why an auction?

• When short time frames must be met.
• Where carrying costs are high relative to value.
• Properties in use transition (e.g. was retail, new use office)
• "Hot" properties, where high demand can maximize price through competitive bidding.
• Over built markets where specific property needs to be showcased.
• Need for high profile, aggressive marketing technique.

What type of real estate properties are sold at auction?

• Single Family Homes
• Condominiums
• Apartment Buildings
• Nursing Homes
• Land
• Industrial Buildings
• Hotels
• Shopping Centers
• Businesses
• Office Buildings

When should the auction method be used?

Sellers should consider an auction: when time is a factor; when carrying costs are heavy relative to anticipated sales price; in an over built market when the property must attract attention; the use of the property may be changing and values are in questions; in "hot" markets to ensure dollars are not left on the table; and in thin markets where the number of real buyers is small and they must be motivated to act.

What does it cost?

Fees are similar to those charged by brokers and range from 4 percent to 10 percent. In addition, the costs of the advertising and promotional program as well as any miscellaneous expenses are the responsibility of the seller. Should the seller choose not to accept the high bid at the auction, he may also be responsible for a service fee to the auctioneer.

Eight to ten weeks is the normal time frame. Most properties require six full weeks of advertising prior to the sale and two to four weeks is usually required to prepare marketing materials.

How is an auction different from a negotiated sale?

In a negotiated sale, the seller typically sets his price and the buyer frames the terms of sale. In contrast in an auction scenario, the seller frames the terms of the sale: when the sale will occur, what the deposit will be, what financing is available, and what contingencies, if any, will be allowed. Bidders compete with one another based on a level playing field of terms and conditions created by the seller to determine the ultimate price. In a conventional sale, the price is generally negotiated downward from the asking price. In an auction, the price begins with the opening bid and ascends upward through competitive bidding.

Can an auction bring in buyers where conventional brokerage has not?

Yes. The time sensitive nature of the auction and the opportunity for a bargain, can bring potential buyers to the table that conventional methods often may not.

Auction psychology forces prospective buyers to consider the auction property before they consider any similar property because of the potential for a bargain. Buyers who did not intend to be in the market will often accelerate buying decisions. Buyers who felt the property would be there when they got around to making a decision are forced to act now rather than wait.

Can real estate sales people earn a commission by bringing potential buyers to any of your sales?

Yes. Auctioneers actively solicit the brokerage community to participate in their auctions by producing and representing prospective bidders at the sale. There is usually a specific fee or percentage participation for brokers in each auction. This participation is earned just for registering the prospect and attending the auction and the closing with the bidder.