With the ever-changing real estate market a centuries-old process of buying and selling has resurfaced. Buying at auction is becoming one of the most attractive ways to buy real estate no matter if it is your primary residence, vacation home or investment property.
To many people, a real estate auction is foreign to their way of thinking regarding the purchase of their condo or home, but auctions have long been the primary means of buying real estate in some parts of the United States, particularly the south. Auctions are the relatively simple process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the winning bidder. The definition above is the basic auction form but there are several variations, including time limits, minimum or maximum limits on bid prices, and special rules for determining the winning bidder or sale price. Many times the participants may or may not know the identities or actions of the other bidders and they can participate in a variety of ways, such as by telephone, or Internet.
Essentially there are three types of auctions. An absolute auction is an auction without a reserve in which the subject property is sold to the highest bidder regardless of the amount of the winning bid. Since the sale is guaranteed regardless of price, buyer excitement and participation is heightened. This type of auction generates maximum response from the market, thereby ensuring attaining true market value for that particular property on that particular day.
A minimum bid auction is one in which an auctioneer accepts bids at or over a published price. For sellers it reduces the risk of the subject property being sold for less than what the seller is willing to take. For buyers they know at what price the property will ultimately sell, minimum bid or possibly higher. The key here is for the seller to set the minimum bid low enough to attract the interest of buyers but not too low to sell below market value.
The last type of auction is the reserve auction. In simple terms with a reserve auction, the high bid is reduced to an offer, not a sale. The seller reserves the right to accept or reject the highest bid, or offer, within a specified period of time, usually 48 to 72 hours. The downside of this type of auction is that many times, prospective buyers will not invest their time and energy since there is no certainty they will be able to buy the property even if they are the highest bidder.
Sellers must therefore select very prudently which of the three types of auctions they wish to list their properties in. The professionals at RealEstateAuctions.com are here to help.