Property Auctions The Benefits
- April 27, 2016
- Posted by: RickEberhart
- Category: Auctions, Real Estate
There are a lot of myths about property auctions floating around. The truth is, auctions work. They are a fast and transparent way to liquidate real estate in a competitive marketplace. We’ve outlined some of the facts and benefits of property auctions.
Control Time With Property Auctions
The auction process is by far the best method to control time in a real estate transaction. In an auction, especially online property auctions, a specific end time is pre determined. The buyers and sellers know in advance when the bidding will close and a winning bidder identified.
The traditional real estate marketing method (agent, sign in the yard MLS listing) could possibly produce a buyer fairly quick. It could take a long amount of time. There is a chance the property won’t sell at all. There is no way to gauge and control the amount of time it will take to sell the property using traditional methods.
When buyers know when an auction closes it creates a sense of urgency. The realize that their chance of owning the property is fleeting and that that swift action is required to buy. Auctions create scarcity.
Property auctions are an efficient way to produce an able, qualified buyer. Our system generally requires a 6 or 7 week marketing process, the sale day and a 30 day close. Usually it takes around 10 weeks to complete a sale and to close.
Fresh Pool of Buyers
Using the auction method of marketing, especially an online property auction, exposes the parcel to a new audience of potential buyers.
Auction companies maintain databases of past customers. These bidders would not likely be reached using traditional real estate marketing. Online auctions have the unique ability to attract buyers from other parts of the country as well as international buyers.
Institutional buyers like hedge funds, REITs and large property management firms routinely purchase properties at auction. Local investors utilize auctions as a source for investment properties. They are attracted the ease and efficiency of the transaction. They don’t have to deal with sellers, contingencies, negotiation and other factors that slow down the acquisition process.
Property Auctions – Benefits to the Seller
Usually a property will sell at auction “as is”. This saves the buyer the headache and expense of curing physical problems associated with the property. Repairs would normally tie up a traditional sale. If there is a known problem, roof leak, plumbing issues, outdated air conditioning etc., it is disclosed prior to the auction and the buyers base their bids accordingly.
There are usually no contingencies in a real estate auction. The sale is usually all cash so there is no waiting for loan approval or the buyer to sell their home. When a property auction ends, the buyer is expected to close with cash in a short amount of time, generally 30 days. If the buyer fails to close they will forfeit their deposit.
Competition- Here’s the magic
Some people’s perception of a real estate auction the local tax authority selling properties for pennies on the dollar. This does happen in many parts of the country. These auctions are usually conducted by a city official who’s main purpose is to dispose of the properties. They just want to recoup some delinquent taxes and get properties off of the books.
Rarely does a municipality do any sort of marketing campaign or cultivate qualified buyers over time. City governments are not in the auction business. They have other priorities.
A professional auction company will market the property to attract many qualified, COMPETITIVE buyers. That’s the magic.
Auctions are competitions. They pit bidder against bidder to drive the price of the property higher. People are competitive! They want to win!
Even in an online only auction format, the competitiveness of people drives price. In some cases, real estate sold at auction will bring a higher than market sales price.
Is an Auction the right choice?
The auction method of marketing is ideal the there is a time factor in the sale of real property. Auctions allow the sellers to control when they want the property to sell.
Auctions bring in fresh buyers. The buyers are qualified to buy with cash with no contingencies. The properties are sold “as is, with all fails” as well.
Property auctions foster competitive bidding. Prospective buyers will drive the sale price up instead of negotiating it down.
Traditional real estate sales are still the most popular way to sell property. Auctions are gaining gaining ground and are becoming commonplace in the retail property market.