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Real Estate Auctions

A real estate auction is an option if a property just isn't selling.

In an absolute auction, the property goes to the highest bidder. [©Jupiter Images, 2010]
©Jupiter Images, 2010
In an absolute auction, the property goes to the highest bidder.

Real Estate Auctions

Real estate auctions are used to move a property when listings fail to attract a buyer. Rejournal notes that auctions are especially useful in a turbulent economy for sellers on a timeline, because they accelerate the deal-making process. Before an auction takes place, the seller makes the terms of sale and due diligence materials available to prospective bidders, who then have an opportunity to inspect the property. On the day of the auction, price is determined by vocal, progressive bidding on the site of the property. There are also Internet auctions, which allow people to bid from all over the world.

Benefits to Sellers and Buyers

Since the terms of a real estate auction are cut and dry, the sale is more likely to go through. Sellers are relieved of the hassles of showings and negotiations, and have some assurance that the property will be sold at market price. At the very least, they can unload a property quickly to avoid property taxes and maintenance fees. Pre-auction publicity ensures that multiple bidders come to the auction ready to buy, and competition may even bid up the value of a property if enough interested parties are present.

Auctions are also good for buyers, because they know the seller is committed. Buyers also know that the bidding is fair, and when they can close on the property. The U.S. Department of the Treasury, which facilitates public auctions on seized properties, notes that buyers can get a good deal at an auction. However, it urges prospective bidders to exercise caution and due diligence before bidding. Open houses are available before the event, and failure to participate will not void the sale. Bidders can also hire a property inspector to evaluate the property during an open house.

Three Types of Real Estate Auctions

The National Association of Realtors reports that there are three types of auctions: absolute, minimum bid and reserve. An absolute auction is the most straightforward: the property goes to the highest bidder, no matter how low the price. The prospect of a sure sale excites potential buyers, which may increase turnout. Government agencies and banks that own foreclosed properties frequently use this auction method.

A minimum bid auction is one in which the seller sets a minimum price that bidders can match or raise. This guarantees the seller a minimum amount, but discourages buyers on the lookout for a fantastic deal. It also encourages buyers looking for a property at the minimum bid's price point, who may not be prepared to bid more.

A reserve bid attempts to combine the best of both worlds. The seller sets a minimum price but does not publish it. After the auction, the seller has a pre-specified period of time -- usually 72 hours -- to accept or reject the high bid. Essentially, the high bid is an offer rather than a sale, which may discourage buyers.

Participating in a Live Auction

Each organization has its own bidding process, so participants should check to see exactly what is required. Most live auctions have some things in common, however. Bidders are always encouraged to attend an open house session before the auction to see the property for themselves and have their questions answered. On the day of the auction, they should come prepared with identification and a cashier's check for a deposit on the auctioned property. The amount of the deposit varies depending on the auctioning body and the property's estimated value.

Once the bidder hands over a deposit check and fills out the appropriate paperwork, they are usually given a card with a number on it. To make an offer on the property, all the bidder needs do is raise the card. Some auctions allow written bids to be submitted before the auction begins, as long as a bidder submits a deposit check to make the bid valid. Should the bidder win the auction, the check will serve as the first payment on the property. Other bidders get their deposit checks back.

Finding Auctions

There are a number of places people can find auction listings. The National Association of Auctioneers maintains a listing that allows buyers to search by auction company, location and type of property. Government listings are the place to check for auctions of seized, foreclosed or surplus properties. A number of government organizations regularly auction off property, including the Internal Revenue Service, Office of Housing and Urban Development and Department of Veterans Affairs. The U.S. Department of the Treasury has a full list of departments and agencies that hold auctions.

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