An auction sets a time limit on a sales campaign, thereby making it a very focused method of sale and creating urgency in the market.
Buyers are attracted on the merits of your property, rather than the price attached to it. Competition is encouraged in order to achieve the maximum possible price without the restraint of a price ceiling.
It involves an aggressive and targeted marketing campaign leading up to an ultimate auction date which indicates your commitment to selling your property. There are a number of advantages to selling by auction:
- The price is removed from the equation which makes it difficult for buyers to determine the value of your property.
- Encourages buyers to act faster as they are faced with a deadline.
- During the auction, pricing is ascending rather than descending as is the custom with a private treaty negotiation. With no price barrier, the bidding could well surpass the reserve price.
- Pools all the buyers in the one area at the one time, potentially creating a “hot bed” of competitiveness.
- If there is more than one bidder, the competitive nature of an auction can often cause them to bid higher than what they initially set out to spend so that they can “win” the property.
- As the Vendor, the terms of an auction contract are more in your favour as immediately “unconditional” without having to wait on buyer’s finance or building inspection terms.
- You are protected by a “reserve price” below which the auctioneer is not allowed to sell your property.
Seemingly rigid in its implementation, an auction is flexible and very much in your control. In order to avoid the competition, a buyer may put in an offer prior to the auction date. This is where a good real estate agent will be able to either negotiate a sale at a price that possibly surpasses your expectations and more importantly, is on your terms. Or the agent can defer the offer and persuade the buyer be prepared to bid at the auction.
What To Expect On Auction Day
Before auction day, you will have had lengthy discussions with your agent about setting the reserve price (determined in part by feedback received during the open inspections), whether or not the auctioneer will start with an opening bid, and whether or not Vendor bids will be used.
Prior to the commencement of the auction, your agent will have had one last open house inspection. In preparation for the auction, bidders will have to be registered and certain legal documents will have to be displayed for bidders to peruse.
Once bidding starts, the auctioneer will accept bids or submit Vendor bids if so instructed, and once the reserve price is reached, the property is considered to be “on the market”. Once this point is reached, the property will sell to the highest bidder. Should the reserve price not be reached, the auctioneer and your agent will discuss the proceedings with you to determine if you would be happy to sell at a lower price.
Once the property is sold under the hammer, the sale is immediately considered unconditional.
Click here to view an auction in action.