Types of Auctions
Absolute Auctions sell properties to the highest bidder.
Minimum Bid Auctions sell properties to the highest bidder above the advertised price. The minimum protects the seller but may reduce the number of potential buyers.
Reserve Auctions give the seller the right to refuse the highest bidder.
Auctions can be a great way to sell real estate, but not every property should be sold that way. Only the right property and market conditions will lead to success.
George Clift of Clift Land Brokers specializes in auctions through his affiliate, Clift Land Auctions. The Amarillo-based REALTOR® and licensed auctioneer says there are several important things to know before you and your client bring a property to auction.
First and foremost, auctions are not a last resort or second-tier option if a property doesn’t sell privately. Clift says properties sold at auction often sell for more than they would have if they were listed.
Know the Market
Real estate agents who work in auctions spend a lot of time understanding their local markets and connecting with potential buyers. Often, auction buyers live near the property.
“That’s the difference between an auction and a traditional listing,” Clift says. “With a traditional listing, you post it on the MLS or on the internet and hope someone finds it. We spend a lot more money marketing a specific auction property than a personal listing.”
The best auction properties have pent-up demand for them. A small dairy may be too specialized to draw a crowd normally, he says, but if dairy farmers have been calling your brokerage for weeks, it could be a good candidate to auction off.
While some buyers will attend every auction, you must attract enough serious buyers to encourage bidding on your property.
Assemble Your Team
The NAR Code of Ethics tells REALTORS® to only practice within their expertise. If you are unfamiliar with auctions, partner with a more knowledgeable professional.
NAR says you can either refer a client to an auction company, be a cooperating agent/broker, or a co-broker.
You’ll need to hire an auction company to do the necessary marketing and an auctioneer to conduct the sale. Unless you have an auctioneer license, you cannot call your own auction. Clift says to interview your auctioneer carefully and make sure he or she has experience auctioning your type of property.
Set the Terms
With auctions, the seller makes the rules. All bidders have access to the same purchase agreement. “Our contracts have three blanks on them: your name, your price, and your signature,” he says.
There are several types of auctions. Clift usually works on absolute auctions, where there is no minimum bid.
Clift recommends clients do not publish an estimated value, especially for absolute auctions. If buyers enter an auction with a price in mind, it may limit how high the bidding could go.
“The public may think they know what the value is, but if they like the property, they will always bid more than they tell you,” he says.
Clift calls auctions the truest expression of the market. The highest bidder is what the market will bear on that day and time.
“If you do everything you’re supposed to—if you marketed it well, spent time knocking on doors, told everyone you’re taking this to auction, auctioned it in an open forum, and the seller has realistic terms—how can an appraiser ever say it didn’t bring the market value?