The “National Real Estate Trade Association” has a link to provide their members and the public with information regarding real estate auctions. While most of the information is reasonably accurate, there are at minimum five glaring material misstatements:
There are not three types of auctions. There are two types of auctions — with reserve or without reserve (aka absolute.) With reserve auctions can have disclosed minimum bids, confidential reserve amounts, and/or seller confirmation of the final sale price.
This Two-Thirds Rule is nonsense. The claim is that sellers should look at the market, the seller, and the property — and if two of the three suggest an auction, it may be a prudent situation. In fact, the seller’s circumstances are the primary reason an auction is a good or bad idea, and the property and/or market have very little (if anything) to do with it. (*)
It is not true (as is suggested) that “The desirability of the property — including location, conditions, plus the value of surrounding properties” impacts the success of the auction. All these factors affect price, whether it is an auction or not.
It’s false to say “If a property will only appeal to a narrow market, an auction may not be the most effective marketing method.” “Sealed bid” auctions work better than any other method for properties with a narrow market.
Potential buyers are generally not “Required to pre-qualify for financing” and rather participate knowing that if they don’t perform they may lose their earnest money deposit and possibly be liable for further damages.
* We have argued for years that equity, urgency, and reasonable expectations (solely seller circumstances) should be enough to consider an auction. Any property in any market can have these three essential seller qualities.
If you are interested in real estate auctions, we would recommend you find and contact an experienced real estate (real property) auctioneer near your subject property. It isn’t necessarily advantageous to find a real estate trade association member to discuss your circumstances, especially if he or she isn’t in the auction business.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at Mike Brandly, Auctioneer, Brandly Real Estate & Auction, and formerly at Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auction Association’s Designation Academy and Western College of Auctioneering. He has served as faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.
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