The simplicity and speed of sale by auction is making it an
increasingly popular way to sell property. With benefits such as a
higher sale price, cheaper costs, and greater exposure, many people
have jumped on the competitive-sales bandwagon. Naturally, though,
there are associated risks such as the possibility of smaller offers
for your property, or even no offers at all, especially during a
depressed time in the market. However, with careful planning, there
is every chance of a high sales prices.
Waiting for the hammer to fall As with other types of auction,
selling property this way simply means that prospective buyers bid
against each other for the property at a pre-set time and place.
With several active bidders, the price should gradually climb until
there is only one left.
Auctions generally work best during a strong market or a boom period
as the demand for housing will see greater competition for good
properties. In some regions, selling by auction is more common than
private sale. Remember: forewarned is forearmed, and it's easy
enough to find out if your property is going to be successful at
auction by attending a few local inspections and other auctions and
seeing how they go. In a period of high demand, sale
by auction is generally extremely successful.
In addition to achieving a higher sale price, auctions also mean -
in theory, anyway - that it's easier to establish how much a
potential buyer is willing to pay for a property, as opposed to the
counter-offers and haggling that may occur with a private sale.
Auctions also motivate potential buyers towards a speedier
resolution as the buyer is obliged to sign a contract at the fall of
the hammer. By cutting out the delaying tactics and lengthy
negotiations that may be employed by some buyers or agents, sellers
can draw a sale to a quick conclusion. Interested buyers can also
make an offer prior to the auction if they wish
to get ahead of any potential competition. By accepting an early
offer, the auction is cancelled - however, the agent's commission,
plus any expenses that have been incurred or for which you were
contracted, will still need to be paid.
Advertised inspection days before an auction attract as many
potential buyers as possible. These official viewings also limit
inspection times to regular days and hours, making them easier to
live with, and the agent will usually be on hand to answer any
questions from potential buyers. Promotional costs are added to the
agent's commission and may be more then
those attributed to sale by private treaty, yet the result could be
a speedier sale.
During an auction there are a few terms and processes to be aware
of:
Reserve price
Most property auctions have a reserve price. This is the lowest
amount the seller is prepared to accept for the property. This
reserve price is not told to potential buyers.
Successful bid
This is determined by the fall of the hammer. An auctioneer or agent
is not bound to accept the highest bid if it is below the reserve
price.
Passed in
If the highest bid is not accepted or the reserve price is not
reached, then the property is 'passed in' - it is not sold at that
time.
Negotiation
If the reserve price is not reached, the highest bidder usually has
first opportunity to negotiate with the seller through the seller's
agent.
Exchange of contracts
If there is a successful bid - whether it's made during the auction,
or in negotiation immediately after - contracts for sale are
exchanged on the spot and the successful bidder is legally bound to
purchase the property.
Deposit
The buyer is required to pay a deposit (usually 10 per cent of the
purchase price) on the spot. This is handed over to the agent when
exchanging the contracts.
When selling through an agent an 'agency auction agreement' will
usually need to be signed stipulating the reserve price, the agreed
commission, and details of other costs that will have to be carried,
such as advertising. The contract will give the agent
exclusive rights to the sale for the agreed period.
Sold to the person in the front row!
Auctions present a similar set of pros and cons for potential
buyers. The main con is the reserve price. As the reserve is not
made available to the purchasers, potential buyers are somewhat in
the dark as to expectant prices. An auctioneer or agent is not bound
to accept the highest bid if this is below the reserve price or
accept any bid until the fall of the
hammer.
Thus, it's a good idea to do some research into the local market to
help and establish a realistic price for the property, and this goes
for buyers as well. Recent sales information is available newspapers
and agents' notices, and organized structure of inspections with
agents who are familiar with the property and the facilities in the
surrounding area are invaluable.
Financially, the bidding process may result in a much more realistic
price for the property being set by the interested parties instead
of the seller. The purchaser could therefore easily end up
buying at a lower price than anticipated.
The successful bid is known at the fall of the hammer. If the
highest bid is not accepted then the property is 'passed in' and the
reserve price is revealed to certain interested persons. If the
reserve price is not reached, the highest bidder usually has first
opportunity to negotiate with the seller.
If a bid is accepted, contracts are exchanged on the spot and a
deposit is paid. This ensures that neither the seller's nor the
purchaser's time is wasted. Generally there is no 'cooling off'
period for contracts that are exchanged after a successful auction
bid as there is with private treaty sales.
Because of this immediate exchange of contracts, it is very
important for the purchaser to have all their financing formally
approved and any conditions imposed by the lending body must be
fully understood. To reiterate, a buyer is legally bound to purchase
a property on exchange of contracts. Do not, under any means, bid
above your limits.
It is important to obtain a copy of the contract and any
certificates well in advance of the auction and to have a solicitor
or legal representative check the terms and conditions. This will
help to understand exactly what is included in the sale. It is also
necessary to have a pre-purchase property inspection and a pest
inspection to ensure the property is structurally
sound and free of pests.
Where to now?
You can usually find property auction dates through agents and in
announcements in newspapers. But, as you're reading this on your
PC's Web browser, there's a far easier route. Global Estate includes
auction properties in its listings service - simply register and
search for a property for auction in your country and area.
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Hayden Lilienthal is a content producer for Global
Estate (www.globalestate.com), the first true portal site designed
to cater exclusively to real estate. The site includes property
listings, news, and advice articles on everything from buying a home
to eliminating household pests to using the Internet to find a home.