1. What is a real estate auction?
A real Estate Auction is a method of buying and selling real estate. It is an intense and accelerated real estate marketing process that involves the public sale of property through open, competitive bidding.

2. What are the benefits of a real estate auction?
The real estate auction is definitely a win-win proposition for everyone involved. The seller disposes of properties quickly and efficiently, thereby saving long-term carrying costs such as interest, real estate taxes and maintenance. For the buyer this can mean a smart investment, since properties are usually purchased at fair market value through competitive bidding. Because the auction sale is conducted in an open forum, both motivated buyers and motivated sellers have the assurance of watching the property’s true market value emerge as the bidding process progresses. For both buyer and seller, fair market values for the property prevail. An auction creates competition among buyers and exposes the property to a large number of pre-qualified prospects. Because it is an accelerated sale, property can often be sold within 6 weeks of listing. For the agent, auctions can mean an increased client and customer base as well as increased profits.

3. What factors determine the success of an auction?
A) The desirability of the property being sold. This includes location, condition and surrounding properties.
B) An aggressive marketing and advertising plan geared to prospective purchasers.
C) Realistic expectations on the part of the seller.
D) Selecting the type of auction that best suits the property and the seller’s needs.
E) Conducting the auction in a professional manner and following up through closing.
F) Undertaking due diligence ahead of time so buyers are knowledgeable and the only issue that remains is price.

4. Are all properties suitable for auction?
Most properties, but certainly not all, are saleable by auction. Residential property (including town homes, condominiums, cooperative apartments and single-family homes), commercial property, vacant land - even boat slips - are sold at auction. Some sellers try to sell unsuitable or unmarketable property through an auction. This is property that perhaps has been on the market too long, causing prospective buyers to consider it “tainted.” Perhaps the project itself was poorly constructed or planned. These types of properties don’t do well at an auction and most reputable auction marketing companies would not accept them.
One method used by auction firms to analyze the market, property and seller situations is the two-thirds rule. A general explanation of the rule is that if two out of three parts (market, property, seller) lean favorably toward auction, then auction should be offered to a seller as a sales option.

5. If a property doesn’t sell at auction, is possible to still market it?
Yes. The auction marketing method has exposed the property to a large segment of the buying public. Many times a buyer who wants the property but is uncomfortable with the auction process will make an offer after the auction date. In other instances offers to buy the property prior to the auction date are made and accepted.

6. What if the sale doesn’t close?
A well-conducted real estate auction by its very nature minimizes such failures. There are generally only three reasons buyers will back out.
• They think they’ve been misinformed. If the marketing plan spells out all information, buyers won’t experience feelings of this sort.
• They think they’ve overpaid. An auction demonstrates price in a clear, concrete fashion: a second highest bidder made a bid just below the buyer’s.
• • An act of God can take place.
Failure to close can happen, but it isn’t frequent. If the rare failure to close occurs, a seller may be in a better position than someone facing a collapsed close with the private negotiated method. The private negotiated seller may have to return to square one in a search for a new buyer. The auction seller can turn to the next highest bidders, who demonstrated their willingness to pay nearly as much as the buyer who failed to close.

7. What happens to the earnest money if a buyer decides at a later date not to buy the property?
Many of the same things happen in an auction situation as in any other real estate transaction. The earnest money deposit is forfeited if the higher bidder is unable to consummate the sale regardless of the reason. If the seller fails to close because of defective title, etc., the buyer’s deposits will be refunded immediately.

8. Don’t real estate auctions depress home values?
Not at all. Real estate auctions reveal the true market value of a property because auctions are conducted in an open forum where all bids are known, and participants are given immediate feedback on the property’s value. At auction, values settle at the level the market can bear, neither elevated nor deflated.

9. What is a buyer’s premium?
A buyer’s premium is an additional charge to the purchaser of the property. It is usually expressed in the form of a percentage of the high bid. The typical buyer’s premium in a real estate auction is 2% to 10%. You need to refer to the terms and conditions of the specific auction to ascertain the amount of the buyer’s premium. The prospective buyer must consider the impact of the buyer’s premium when deciding on the amount to bid for the property.

10. Is a buyer’s premium always charged in real estate auctions?
No. Always check the terms and conditions of the specific auction to see if a buyer’s premium is applicable.

11. What are the various methods of auctioning from which a seller may choose?
Essentially, there are three different types of auctions:
• Absolute Auction - (Or Auction without Reservation) The property is sold to the highest bidder, regardless of the price. The main advantage of an absolute auction is that it generates maximum response from the market place. Since a sale is guaranteed regardless of the price, buyer excitement and participation are heightened. Because this type of auction generates an ideal response, many financial institutions and government agencies have begun to use it in greater frequency. Despite the fact this type of sale attracts a larger number of buyers, the guarantee of a sale at the highest bid, regardless of price, often makes a seller feel nervous and at risk.

12. Under what terms does a property sell at auction and who set these terms?
The seller sets the terms with the advice of the auction company. It is necessary to have “balanced” terms - terms and conditions set by the seller under which buyers bid and under which the winning bid is established. If terms are not set with buyers in mind, there will be none. Once terms are set, there are no contingency clauses on auction day. Usual terms are that the high bidder deposit earnest money (either a percentage of the purchase price or a stated set amount) and enter into a purchase contract immediately following the auction with the balance of the purchase price due usually within 30 to 60 days at the closing. The seller generally provides title insurance. Properties generally sell “as is” with no warranties expressed or implied. Since the only issue left is price, due diligence is done in advance of the sale such as preparations of information packages and inspection reports.

13. Who usually buys at real estate auctions?
Anyone can benefit from buying at a real estate auction. Many people who buy are first-time homebuyers who may otherwise be shut our of the real estate market. For them, the auction is a realization of a dream. Empty nesters and investors also comprise a large segment of the auction buying public.

14. How are properties advertised for auction?
This varies greatly depending on the type and value of the property being sold. One of the essential underpinnings for a successful auction is a highly aggressive marketing program. Each auction has its own powerful promotion and advertising. Auction marketing is an intensive effort and a well-timed plan to create massive interest in the properties available for sale. The advertising budget is established according to specific properties and the type of market that’s needed to be reached. That budget is then broken down into various forms of advertising that will best target the market for the auction. The various forms of advertising are: sale bills or brochures mailed directly to prospective purchasers and posted in public places, newspaper advertising in local and possibly regional or national papers, ads in trade journals and magazines, radio ads, signs posted on the property and possibly television and cable ads, and phone solicitation. A qualified and experienced auction company knows which forms of advertising are best for a particular type of auction and its location and will facilitate everything from preparing the advertisements to placing them in the desired forms. The aggressive advertising hits large groups of buyers that will come and competitively bid on property thereby yielding true fair market value for a seller’s holdings.

15. Who pays for the advertising?
Most sellers that employ the Auction Method of Marketing are both motivated to sell and realistic on property value. The shortened marketing time and reduced holdings costs allows them the luxury of an aggressive marketing program - usually in the form of brochures, direct mail, newspaper ads - display and classified, trade journals, signage and possibly TV and radio ads. Depending on geographical location, value of the property and size of the marketing area (local - regional - nationwide), the advertising budget can run from 1 to 4 percent of the estimated proceeds.
Once the budget for advertising is agreed upon between the seller and the auctioneer, the auctioneer prepares, coordinates and places all advertising. The advertising expense is the responsibility of the seller and is usually collected at the singing of the auction contract. In most cases, the auctioneer does not get paid unless the property sells. However, on larger auctions where there is an extensive amount of work and preparation for the auction, there may be a no sale fee or minimum to offset the time and expenses incurred. Sellers and willing to pay advertising expenses to produce a fair market sale in a short time period, usually 4 to 6 weeks.
The auction method of marketing is a direct barometer of the activity in the market place. The aggressive advertising informs and draws the buyers to the auction to compete for the property. A property advertised auction will bring all interested buyers together at one time to do business, thereby producing the optimum results in a condensed time period and on a day, date, and time that suits the seller’s time schedule.

16. How long does it take to market the property, perform the auction and close the sale?
The time frame varies depending upon the type of property auctioned. Generally, the process takes 45 to 90 days from listing to closing. The auction itself may take anywhere from five minutes on a single property to all day on a multi-property auction.

17. What are the advantages to the seller in an auction situation?
Buyers come prepared to buy. “Lookers” are eliminated because most often bidders must qualify through a deposit of a certified or cashier’s check. Auction brings interested buyers to a point of decision. Buyers feel that if all the properties are sold before the auction ends it represents their last chance to purchase a desired property. Sellers get maximum exposure for their properties. The auction marketing strategy differs from conventional advertising. It is more concentrated, therefore more intense and visible. High carrying costs are avoided. Through auctions, the seller is in control and knows that if properly priced, his property will sell on a certain date, which is usually within 45-60 days from the auction listing. By selling quickly, the seller is able to avoid high carrying costs such as insurance, real estate taxes, security and maintenance and is also able to benefit from the use of the monies to reinvest in other real estate or investment opportunities elsewhere. Other benefits are:
• Offers the seller another option.
• Creates competition among buyers - auction price can exceed the price of a negotiated sale. An auction generates excitement and heightens buyer interest.
• Requires that potential buyers pre-qualify for loans.
• Accelerates sales - the property can sometimes be sold within six weeks of listing.
• Auction is a true market forum - the highest buyer pays the lowest price a seller will accept.
• A seller knows exactly when the property will sell.
• A seller sets the terms and conditions of the sale, maintains control of the property throughout the auction (depending on auction type), and actively participates in the sale process.
• Auction reduces the time the property is on the market.
• Auction eliminates numerous and unscheduled showings.
• Auction takes the seller out of the negotiation process.
• Auction is an aggressive marketing program that increases potential interest in and awareness of a property.
• Seller is able to obtain liquidity.

18. Can I be sure of getting a fair price?
The only genuine measure of value of real estate is what someone else is willing to pay for it. An appraisal is merely an informed opinion. It is not an offer to buy. The real measure of value of real estate, at any given time, is what it will bring under competitive bidding from informed and motivated buyers.

19. Must I accept the high bid at an auction?
Not necessarily. The auction can be structured in a way that gives the seller the right to accept, counter, or reject any bid without having to disclose the minimum acceptable price prior to the offering at auction. Sellers will want to carefully select the type of auction that best suits their needs. (See Question 11 for related information).

20. What are the expenses related to an auction?
In general, auction expenses include the auctioneer’s fee, marketing and advertising costs, and sometimes co-brokerage commissions. The fee varies depending on the type of property and the type of market you need to reach. Typically, the auctioneer charges a commission as a percentage of the sale price. This commission is negotiable. In addition, marketing and advertising costs are usually paid by the seller and are payable upon signing the auction contract. A complete marketing proposal is provided for the seller’s approval prior to signing. The auctioneer pays a co-brokerage commission, either a flat fee or percentage of the sale price, only if the highest bidder is represented by a registered broker.

21. What are the advantages to the buyer in an auction situation?
The buyer knows the seller is fully committed to sell. Auction agreements obligate the seller to transfer title to the highest bidder in an absolute auction; the auction agreement obligates the seller to transfer title to the highest bidder that meets or exceeds the reserve price in a non-absolute offering. The buyer knows he is getting the property at a fair market price. The buyer feels comfortable with the purchase knowing that there is a contending bid just one increment under the purchase price. The buyer has negotiating power. The buyer can withdraw from the bidding at any time until the gavel falls. The buyer sees many offerings in the same place at the same time. He is able to make market comparisons quickly and easily. Other benefits are:
• Buyers set their own purchase price.
• Auctions eliminate sometimes long negotiation periods.
• Auctions reduce time to purchase property.
• Buyers do not have to worry about contingencies because purchasing and closing dates are known.
• Buyers know property owners sell at lowest price possible.
• Buyers can receive favorable financing.

22. In what conditions is the property?
All properties will differ as to their condition, and are sold in (as is - where is” condition without warranty or guarantee of any kind (other than clear title). Bidders are strongly encouraged to inspect the property prior to the sale.

23. How many properties can I buy?
You may purchase as many properties as you wish, but you must have a separate cashier’s, certified check or money order for each one. For investors, financing may be limited to a certain number of purchases. You should consult the Bidder’s Information Package for specific terms.

24. Why should real estate agents look favorably upon auctions?
Increasingly, real estate agents are discovering the benefits of real estate auctions. They are realizing that auctions promote activity in an industry that thrives on activity. Agents can get involved in auctions themselves. If an agent brings a buyer to an auction, and that buyer purchases property, the agent can receive a commission. To ascertain the amount and structure of any commissions to be offered, refer to the particular terms and conditions of the auction contract. A single auction for one development might bring in dozens or even hundreds of prospective buyers who are now in the real estate agent’s market area.
Other reasons:
• Provides a list of ready and qualified buyers.
• Offers clients and customers new selling and purchasing options.
• Increases market share and revenue - new business opportunities are added.
• Enhances company’s image.
• Develops your own market niche - able to offer new products and services other agents aren’t providing.
• Exposes the property to many potential purchasers.
• Auctions appeal to people - it brings them in to look at all the listings you hold, not just the auction listing.
• Auctions cause referral and return business.
• Builds rapport with auction firms.
• Agents don’t have to be auctioneers to earn commissions -
• Earn referral fees as referring agent/broker
• Work as cooperating agent/broker
• Work as listing agent/broker.

25. Does a real estate broker need to become a licensed auctioneer to offer real estate at an auction?
The majority of states require auctioneer registration or licensure. You need to check the requirements in your state. Other options exist for brokers who want to get involved in real estate auctions but do not want to become licensed auctioneers. It can be as simple as registering a buyer, escorting him to an open house, and being paid a commission for his winning bid. It can be as complex as working in a joint venture situation with a qualified auction company. Specific arrangements should be made in writing, outlining the areas of responsibility for both the broker and the auction company.

26. Why should a real estate broker offer auction services?
Auctions can expand your market and your revenues. The auction process will help you obtain new clients and will offer additional active marketing services to your existing clients.

27. In a auction company advertises “broker participation”, how can I earn a commission?
In order to earn a commission in an auction transaction, most auction firms will require an agent or broker to follow these guidelines: a) pre-register the prospect on company letterhead - signatures are required from both the agent/broker and the prospect; b) accompany the prospect to an open house; and c) accompany the prospect to the auction. These steps help eliminate any doubt as to prospect representation and ensure that the agent/broker will be duly compensated for work completed. Agents and brokers should verify with the auction company their procedures on how to earn and collect a commission.

28. I want to get involved in real estate auctions. What do I look for in an auction company?
Getting involved in real estate auctions can be exciting, rewarding and lucrative. Until you have the knowledge necessary to complete successful auctions, it is wise to joint venture with a qualified auction company. Look for an auction company that fits your style and one you know will be comfortable with.
An auction company should:
• Also be a REALTOR company.
• Specialize in real estate auctions.
• Have staff dedicated to research, marketing and public relations.
• Be able to provide contact references.
• Be well established and financially secure.
• Have experience selling like (similar) properties.
• Be able to tell you the number, type and the sales price of the properties it has sold.
• Be able to explain the percentage of units sold that have actually closed.
• Be able to explain company charges and services.
• Have a mailing list that supports a direct mail effort.
• Exhibit familiarity with the market in which the property is sold.

29. What should I look for when attending a real estate auction?
When attending a real estate auction, look for:
• The availability of a sales contract on-site for bidders to review.
• The ease of the registration process.
• Enthusiastic and knowledgeable staff to stimulate maximum bidding potential.
• The availability of financial or pre-qualification services to bidders by the auction company.
• A clean environment and a pleasant décor.
• The use of quality photos, slides or videotape of the property during an auction.
The auction firm should also consider the use of audio or videotape to substantiate the auction proceedings and reduce false claims.

30. How can I find out more about real estate auctions?
Look in your local or regional paper to find out where real estate auctions are happening in your area and attend an auction! Generally, you will be welcomed as a spectator at an auction, but your should contact the company conducting the auction to be sure. Observing real estate auctions will give you a feel for what happens and how it happens and will help you decide your level of participation or involvement in the process. Real estate auctions differ greatly from private treaty transactions, and it takes a special level of proficiency to successfully conduct an auction. There is a definite blending of real estate knowledge and auction expertise that come together to fulfill the seller’s and the buyer’s needs and expectations. Real estate auctions are exciting, fun and a viable alternative to traditional sales techniques.

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