Dispelling Auction Myths

Posted on Jan 9 2019

Let’s just get this one out of the way first… I know you what you’re thinking, "Auctions are only for distressed properties." That couldn’t be further from the truth. Auctions are most often times the preferred sale method for the world’s most unique, iconic, and valuable treasures.

Can you think of a better way to drive the price up, than to have bidders from all over the world compete for the sale?

In Australia’s hot residential market, online real estate auctions are growing in popularity with 30% of new home sales in Sydney and Melbourne sold at auction!

Steve Udelson, Forbes contributor, is quoted in saying, "The Australian trend toward selling and buying real estate at auction may be an indicator of the future stateside as Americans become more educated about the auction process and its advantages."

On the flip side of the bitcoin, auctions can be used as a tool to negotiate with "fence sitters". We’ve all seen it, a potential buyer has been looking at the property for months, maybe even years, but when push comes to shove, they continue to make excuses on why they can’t move forward immediately. Throw a little sense of urgency in the mix with a date for certain of sale and you better believe those buyers will be jumping off of the fence in fear of missing their chance.

Despite the endless benefits of an selling a property at auction, there are still a number of myths that keep many sellers from taking advantage of this marketing strategy.

5 COMMON AUCTION MYTHS:

1. AUCTIONS ARE FOR DISTRESSED SELLERS

Unfortunately, the word auction has been tainted by other words such as, liquidation, & foreclosure, but as mentioned earlier, auctions are the greatest tool in a tough to appraise market. Savvy sellers will actually use the auction message to create what we call, “blood in the water” causing a frenzy of buyers to pour in from all over the world in hopes of a “scoring deal”.

2. ALL AUCTIONS ARE RIGGED

Other online auction companies including; eBay, auction.com, and Williams & Williams - just to name a few - have tainted the good name of auctions by allowing atrocious practices such as shill bidding to influence the natural outcome of an auction. At Future of Real Estate, we not only feel that shill bidding is disrespectful to buyers & sellers, but downright immoral! Some states have even taken action by making it illegal!

3. IF THE AUCTION IS UNSUCCESSFUL, I WILL LOSE MONEY

At The Future of Real Estate, we run what are called an unpublished reserve auctions which means that you have predetermined and undisclosed minimum in which you are willing to take. If the bids do not make it to the reserve price, you are not obligated to take the highest offer.

4. YOU MUST BID SITE UNSEEN

We blame TV for this one. Shows like HGTV’s “Flip or Flop” showcases potential buyers feverishly snooping around abandoned homes, hoping to luck upon a gold mine. If you’re buying CRE, you’re not going to even consider taking on that risk without knowing every detail about the asset they are buying. At FRE we encourage buyers to tour the property multiple times and even provide you with every property document you could ever want to perform your thorough due diligence.

5. BOMBARDED WITH HIDDEN FEES

As we mentioned above, any sophisticated buyer is going to do their homework before placing a bid. Auction companies usually take a buyer’s premium, but the size of the premium will be explicitly laid out the purchase agreement you must sign before placing your bid. We recommended making room for the buyer’s premium ahead of time when you are crunching your numbers.

BONUS: AUCTIONS ARE ALWAYS ALL CASH 30-DAY CLOSE 

90% of the time this statement is true, but luckily for you, FRE has developed a new auction format to combat this issue! The Future of Real Estate's Auction+ format is similar to a normal auction, but it allows buyers to include any contingencies (financing, due diligence, etc.) along with their bid. This dramatically increases the potential buyer pool and allows you, the seller, to then choose the most attractive offer.

So, whether it’s to absolutely maximize the sale price and the size of your commission, or to bring hard headed buyers to their senses, FRE has the right tools for the job.