auc-tion

noun
A public sale in which goods or property are sold to the highest bidder.

“The books are expected to fetch a six-figure sum at tomorrow’s auction”

verb

Sell or offer for sale at an auction.

“His collection of vintage cars is to be auctioned off tomorrow”

The world’s finest art, jewelry, classic cars, yachts, and memorabilia are sold at auction. The stock market is an auction that controls the value of stocks. Livestock auctions have an impact on the cost of food products and energy prices are determined at the Chicago Mercantile, just another auction platform. The interest rate on money is even controlled by auctions. Over the past 30 years, eBay and other online auction sites have has sold billions of items by the auction method.

Even the Traditional method of selling real estate is an auction”, also known as a “Reverse Auction”. This type of auction sets a sale price and lowers the price until a bid is made and ultimately the transaction is closed. Outside of Traditional real estate sales, Reverse Auctions are rarely used, simply because a Seller would rather set the price and let competitive bidding move the price up rather than down. Why limit the upside with a Reverse Auction?

Real Estate auctions are no longer just for distressed properties and become mainstream with the popularity growing by leaps and bounds throughout the United States and all over the world!  Auctions have been the fastest and best way to sell property for thousands of years!

Non-distressed real estate auctions have become extremely popular throughout the United States, especially in major cities where property prices are rising, due to low-interest rates, high demand, and limited inventory. Here in the Washington D.C. Metro Area, we are beginning to see the same real estate dynamics. The dramatic increase in selling and buying real estate at auction may be an indicator of the soon to be “norm” as people become more educated about the auction process and its advantages.

Real Estate Auctions in foreign countries such as in Australia make up nearly 60% of all residential and commercial real estate sales. Auctions are even more prevalent in Australia’s major cities. Sydney and Melbourne saw an average of 70% for home sales.

In the U.S., residential real estate auctions became more common after the housing crisis as new platforms were developed to auction bank-owned homes online. With today’s highly competitive and increasingly expensive housing market, some auction platforms are incorporating consumer-friendly features to cater to more traditionally minded buyers and sellers who are increasingly looking to the auction market to buy their primary residences.

The growing popularity of auctions makes sense when considering auctions offer a transparent means to purchase real estate compared to opaque processes associated with the traditional sales approach used by real estate agents in which buyers are often outbid because they did not have the opportunity to increase their offer, thus, hurting both buyers and sellers. Consumers should consider auctions for the following key reasons.

  • Fair market value: Buyers decide on the fair market value of the property. There is efficient price discovery during the open bidding process, and both buyers and sellers can understand how desirable the property is by seeing how many bidders are competing and how quickly offers are rising. As a result, Buyers can feel more confident about their offer knowing that they are paying exactly what the current market dictates, and home sellers can feel better about getting a fair market price.
  • Less time spent on marketing a property: A traditional approach to selling a home takes weeks or months to complete while a live auction typically only shows potential buyers the house on one given day or, for online auctions, approximately a week. In an ideal scenario, at the end of that day or week, the property is sold. This limits the number of marketing efforts that sellers must deal with, such as hosting numerous open houses.
  • Fast, convenient, and final sales: In an auction, the seller determines the definitive date that the home will sell, which can be helpful for the seller in terms of planning their move or balancing other financial obligations. Interested buyers can come to the auction with their pre-approved mortgage ready to buy the home. At an auction, sellers are in control by setting the minimum price they are willing to take, and buyers know immediately if they have the accepted bid on the property as soon as the auction closes. Given the quick sale, homeowners can also save by reducing (or eliminating) the time they have two mortgages if they already purchased a replacement home compared to the much longer time frame associated with a more traditional approach of selling a home.

ABSOLUTE AUCTION

Selling without a Reserve is also referred to as an “Absolute Auction”. This means that the Seller has agreed to have the value of the property determined by the “market” through competitive bidding on auction day. The Seller will accept the high bid regardless of the amount. The benefit of this strategy is the confidence it instills among Buyers as they know the property will be sold to the highest bidder on auction day. Buyers come prepared to make their highest and best bid. Auctions without a Reserve typically will produce a much better Buyer turn out than an auction with a Reserve. Research also shows that auctions without a Reserve typically will bring a higher sale price for the property than auctions with a Reserve.

RESERVE AUCTION

Selling with a Reserve means that the Seller is placing a minimum sale price for the property the Seller is willing to accept. Should the highest bid at the auction fall short of the Reserve price, the property will not be sold. Some potential Buyers will not attend this type of auction because they do not know what the Reserve price is set at and/or if the property will even be sold on auction day. An option to maintain Buyer interest is to have a low “Opening or Starting Bid”. The Starting Bid is not the Reserve price and is only used as a means to attract Buyers. The Opening or Starting Bid lets potential Buyers know that the property will be sold, so long as the winning bid surpasses the Reserve.

Why An Auction?

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