Joe Foster's Blog

Auctions are becoming an increasingly popular way to sell property. With benefits such as a higher sale price, cheaper costs, and greater exposure, many people have jumped on the auction bandwagon. Of course there are associated risks such as the possibility of smaller offers for your property, or even no offers at all, especially during a depressed time in the market.

There are a number of venues that offer real estate auctions, from the infamous eBay.com web site to local auctioneers. Selling property via online auction means that prospective buyers have a set amount of time (usually a week) to view and bid on the property, whereas local auctions are at a pre-set time and place.

Remember: forewarned is forearmed. As a seller, attend some local auctions with similar properties to see if they are successful in obtaining a sale price within your desired range. As a buyer or seller, it’s a wise idea to contract a Realtor to investigate the properties for you and help you determine a reasonable bidding or selling price.

Auctions can motivate potential buyers towards a quicker closing as the buyer is obligated to sign a contract at the fall of the hammer. By eliminating the negotiation process, sellers can conclude the sale of their property faster. Interested buyers can also make an offer prior to the auction if they wish to get ahead of any potential competition. By accepting an early offer, the auction is canceled - however, the agent's commission, plus any expenses that have been incurred or for which you were contracted, will still need to be paid.

During an auction there are a few terms and processes to be aware of:

Reserve price
Most property auctions have a reserve price. This is the lowest amount the seller is prepared to accept for the property. This reserve price is not told to potential buyers.

Successful bid
This is determined by the fall of the hammer. An auctioneer or agent is not bound to accept the highest bid if it is below the reserve price.

Passed in
If the highest bid is not accepted or the reserve price is not reached, then the property is 'passed in' - it is not sold at that time.

Negotiation
If the reserve price is not reached, the highest bidder usually has first opportunity to negotiate with the seller through the seller's agent.

Exchange of contracts
If there is a successful bid - whether it's made during the auction, or in negotiation immediately after - contracts for sale are exchanged on the spot and the successful bidder is legally bound to purchase the property.

Deposit
The buyer is required to pay a deposit (usually 10 per cent of the purchase price) on the spot. This is handed over to the agent when exchanging the contracts.

When selling through an agent an 'agency auction agreement' will usually need to be signed stipulating the reserve price, the agreed commission, and details of other costs that will have to be carried, such as advertising. The contract will give the agent exclusive rights to the sale for the agreed period.

With some very clear benefits that auctions can offer, there are also some cons to consider. The main con is the reserve price. A reserve price is generally not disclosed to bidders, therefore, potential buyers are somewhat in the dark as to expectant prices. An auctioneer or agent is not bound to accept the highest bid if this is below the reserve price or accept any bid until the fall of the hammer. If the highest bid is not accepted then the property is 'passed in' and the reserve price is revealed to certain interested persons. If the reserve price is not reached, the highest bidder is usually offered the first opportunity to negotiate with the seller.

If a bid is accepted, contracts are exchanged on the spot and a deposit is paid. This ensures that neither the seller's nor the purchaser's time is wasted. This can additionally be a con for both buyers and sellers because there is no 'cooling off' period for contracts that are exchanged after a successful auction bid as there is with private treaty sales.

Because of this immediate exchange of contracts, it is very important for the purchaser to have all their financing formally approved and any conditions imposed by the lending body must be fully understood. A buyer is legally bound to purchase a property on exchange of contracts and can be held legally liable for the terms of the contract.

It is critically important to obtain a copy of the sales contract and any accompanying certificates well in advance of the auction and to have a legal representative check the terms and conditions. This will help to understand exactly what is included in the sale. As with any real estate purchase, it is equally as important to have a pre-purchase property inspection and a pest inspection to ensure the property is structurally sound and free of pests.

As with anything, real estate auctions are not for everyone.  If you want to to aim for a quick sale and are willing to accept whatever sale price may come, then auctions are for you.  If you are not in a complete frenzy to sell your property and are set on receiving a sale price within a certain range, then you should probably not consider auctioning your property.

Whatever the case, and if you're just not sure if auctions are right for you, it's best to consult with a real estate professional to discuss your particular situation.  Joe Foster is a seasoned professional that is knowledgable about both auctions and the local real estate market.  If you would like more information, please contact Joe at (941) 812-7634, or send an email to josephfoster@michaelsaunders.com