People are always asking us what makes a good auction property, and why the auction method of selling is becoming such a popular method for sellers. Initially, let us say that the auction method could be a good fit for any property; big or small, urban or rural, land, residential or commercial. The property is not necessarily a factor in what makes a good real estate auction.
The auction process involving real estate differentiates from the traditional market method by advancing the marketing process, and setting the date on which the property will sell. Essentially, all hands are on deck to let as many buyers know about the property as possible. Ultimately, exposing your property to the most amount of buyers is any REALTOR’s fiduciary duty to their seller. The time-line of events, terms of the contract as far as contingencies and closing procedures are at the seller’s discretion.
By establishing a date for the auction and generating interest in the property, we have not established an “asking price” like in a traditional setting. This does a few things, but most importantly it does not place a ceiling on how much money the seller will net. Sellers must be a part of this process by not establishing pricing expectations to the public for this to work effectively, however I have seen a property that was listed with a REALTOR for months sell for more than the asking price at auction.
We have all seen properties sell the day the sign goes in the yard, and you have to wonder if the seller made as much as they could have if it was snatched up so quickly? Most likely, the buyer had been looking for a while and finally found a property with an asking price he was willing to offer on. What about the 10 buyers that also would have made an offer had they seen it in time? Competing offers are the most ideal scenario for any seller, whether it is private treaty or auction, because they drive the price up.
Ultimately, real estate is worth what a buyer is willing to pay at any given moment. This is what we call “true market value.” Real estate professionals do their best to pin point what this price will be based on historical sales with comparative properties in most cases, and set the price accordingly. The problem with this method is that it is like throwing a dart at the wall and hoping you are close to the target. If you are too low, it will sell really quickly as in the previously mentioned example. If priced too high, the seller now has an expectation that this is what his property should sell for and the house sits on the market because a price reduction is insulting once you decide how much you want to walk away with. The expectation has been set with you, as the owner, as far as how much your home should be worth.
What about appraisals? Appraisals are done for many different reasons, the most common reason is so that the bank can insure that they are not lending more than the property is worth. This is not the same as what a buyer would be willing to pay (market value), and if you hire five appraisers, my experience is that you will get five numbers since the methods are again, an opinion based on past similar property sales. Supply and demand is not taken into consideration with this method. What if you have the only section of land in Riley County for sale? Demand is now on your side, and who knows how valuable that would be to a buyer until we get him competing with another buyer to buy the property. This is obviously an optimistic approach to this situation, but you get the idea. The bottom line is this: Anyone who tells you what your property will sell for today based on past sales, especially in our current market conditions, is simply making an educated guess based on data that is constantly changing.
Some additional benefits of selling real estate at auction versus traditionally include that there are no inspection negotiations, meaning less cost to the seller. Also, there are no financing contingencies in our contracts which means it is not contingent on the buyer getting a loan. There are no lender or appraisal requirements – meaning your property does not have to appraise for what it sells for in order for the deal to close as contracted. All of these elements were designed to protect our property owners, because in the auction business we don’t just schedule another auction!
What makes a good fit for a real estate auction? A great partnership with a motivated seller who understands that true market value will be attained when competing bids are on the table. The good news is that we will talk with you to make sure we are a good fit for your situation and we are eager to explain why or why not an auction would be right for your property.
Traci Loftis is the Real Estate Services Manager at Purple Wave Auction/Purple Wave Realty, LLC. Contact Traci at traci.loftis@purplewave.com.
