Different types of real estate auctions available
Essentially, there are three types of auctions: absolute auction (or auction without reserve); minimum bid auction ; and reserve auction (an auction subject to confirmation). Another type of auction is a foreclosure auction. The characteristics of each type of auction are outlined below:
| ABSOLUTE AUCTION: |
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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, thereby being the only auction process to ensure attaining market value. Many sellers, including financial institutions and government agencies, have begun to use this method more frequently since an absolute auction offers the best performance results of all. |
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| MINIMUM BID AUCTION: |
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The auctioneer will accept bids at or above a published minimum price. This minimum price is usually stated in the brochure and advertisements and announced at the auction. Reduced risk for seller if the seller wants a set price or will not sell. The sales price must be above a minimum acceptable level. Buyers know they will be able to buy at or above the minimum price . 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. It is not only difficult to set this lower figure, but there is a great risk of setting some form of anticipated value by using this figure. |
| RESERVE AUCTION: |
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With a reserve auction, 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 usually will not invest the time and expense of due diligence when there is no certainty they will be able to buy the property even if they are the highest bidder. The level of excitement at this type of auction is much lower, and this process affects attaining market value significantly. |
| FORECLOSURE AUCTION : |
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The foreclosure auction in real estate occurs when the mortgagor, through a legal procedure, forces the property to be sold thereby removing all existing deeds of trust on the property. This procedure, among other things, requires the sale to be promoted in the legal notices of the local newspaper several times prior to the sale and also requires the sale to take place within a time frame of several hours on a designated day on the courthouse steps. Although this procedure may resemble an auctioneer's method in some ways, it simply can be a legal maneuver to allow the existing mortgagor to reacquire the title of the property. Any artificial bidding such as a foreclosure by a seller or a mortgagor to protect his/her interest has nothing to do with the true value of the property. Artificial bidding can be a detrimental influence on the bidding of the market place itself, thereby diminishing the odds significantly that the property will sell for true market value. Such practices are not looked upon favorably by the real estate auction industry. |
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