Thursday, November 17, 2011

How do real estate auctions work?

How do auctions work?

There are three types of auctions in our system: Absolute, Minimum bid and Reserve. Each of them is discussed in details below.
Absolute auction (or auction without reserve)
  • The property is sold to the highest bidder, regardless of the price.
  • Since a sale is guaranteed, buyer excitement and participation are heightened.
  • Generates maximum response from the market place.
Minimum bid auction
  • The auctioneer will accept bids at or above a published minimum price. This minimum price is always stated in the brochure and advertisements and is announced at the auction.
  • Reduced risk for seller as the sales price must be above a minimum acceptable level.
  • Buyers know they will be able to buy at or above the minimum.
  • The seller may, however, limit interest in the auction to only those buyers willing to pay the minimum bid price, and therefore it must be low enough to act as an inducement rather than a hindrance.
Reserve auction (an auction subject to Confirmation)
In this scenario, the high bid is reduced, in effect to an offer not a sale. A minimum bid is not published, and the seller reserves the right to accept or reject the highest bid within a specified time—anywhere from immediately following the auction up to 72 hours after the auction concludes. Sellers predetermine the price at which the property will be sold and are not obligated to confirm a sale other than at a price that is entirely acceptable to them. The main disadvantage of a Reserve Auction is that prospective buyers may not invest time and expenses of due diligence when there is no certainty they will be able to buy the property even if they are the highest bidder.

Wish to find out more about real estate auctions? Wish to network with other real estate auctioneers? Join the Real Estate Auction Global Network Group 

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