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Posts Tagged ‘minimum bid auctions’
Auctions
With the ever changing real estate market a centuries old process of buying and selling has resurfaced. Buying at Auctions are becoming one of the most attractive ways to buy real estate no matter if it is your primary residence, vacation home, or investment property. To many people in Chicago a real estate auction is foreign to their way of thinking regarding the purchase of their condo or home, but auctions have long been the primary means of buying real estate in other parts of the country, particularly the south. Auctions are the relatively simple process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the winning bidder. The definition above is the basic auction form but there are several variations, including time limits, minimum or maximum limits on bid prices, and special rules for determining the winning bidder or sale price. Many times the participants may or may not know the identities or actions of the other bidders and they can participate in a variety of ways, such as by telephone, or internet.
Essentially there are three types of auctions. An absolute auction, or an auction without a reserve where the subject property is sold to the highest bidder regardless of the amount of the winning bid. Since the sale is guaranteed regardless of price buyer excitement and participation is heightened. This type of auction generates maximum response from the market, thereby ensuring attaining true market value.
Minimum bid auction where an auctioneer accepts bids at or over a published price is the next type of auction. For sellers it reduces the risk of the subject property being sold less than what the seller is willing to take or the property does not sell. For buyers they know at what price the property will ultimately sell, minimum bid or possibly higher. The key here is for the seller to set the minimum bid low enough to attract the interest of buyers but not too low to sell below market value.
The last type of auction is the reserve auction. In simple terms with a reserve auction the high bid is reduced to an offer not a sale. The seller reserves the right to accept or reject the highest bid within a specified period of time, usually 48 to 72 hours. The down side of this type of auction is many times prospective buyers will not invest their time and energy since there is no certainty they will be able to buy the property even if they are the highest bidder.
The History of Auctions
Auctions are increasingly seen as the best way to sell real estate, due to the benefits they provide for buyers and sellers, but the history of auctions is long and storied, dating back at least to Ancient Greece.
Auctions have likely been conducted from time immemorial, but Greek scribes in 500 B.C. were the first to leave a written record, telling of auctions being the only legal way to sell brides to prospective husbands. Particularly beautiful women were subject to vigorous bidding, and fetched the highest prices, while families of those judged less attractive had to add dowries or other extras to make the sale.
The word “auction” comes from the Latin word, augere, meaning “to increase” or “augment,” and Roman emperor and philosopher Marcus Aurelius was said to use auctions to sell family furniture, and others sold war plunder. Rather than the gavel used today, a spear was thrown down to signal the start of proceedings.
The history of auctions in America dates back to the Pilgrims’ arrival in the 1600s and became a popular way to sell land, crops, furs, livestock, and most notoriously, slaves. Just as today, they were seen as the fastest and most efficient means to convert assets into cash. During the Civil War, colonels regularly auctioned off the spoils of war and surplus, and auctioneers are still often called “colonel.”
Many auction schools started in the early 1900s in the United States, with the Jones’ National School of Auctioneering and Oratory win Davenport, Iowa thought to be the first. After World War II, the number of auctions held increased considerably, due to the ability to move real estate and personal property faster than the private market would allow. There are numerous types of auctions, but the ones commonly used for real estate are absolute auctions, reserve auctions and minimum bid auctions.
During the 1990s, technology was finding its way into the auction business. The online auction house of eBay was launched in 1995 and went on to become an “online leader” in the bidding business. With the increasing use of technology and the Internet, the future promises to be as interesting as the history of auctions. Many auctioneers today offer both live and online auctions to meet the needs of customers who could be anywhere in the world. Technology lets buyers participate in the sale without even being there, but as anyone who has attended an well-run auction will attest, being there is half the fun.
Absolute auctions
Of the three types of real estate auctions: absolute, minimum bid, and reserve, absolute auctions are probably the ones the casual observer is most familiar with. According to industry professionals, they definitely are the ones that generate the most excitement among spectators and bidders.
To explain briefly the differences between the three, in a minimum-bid auction, a seller sets a minimum price at which bidding must start. This gives the seller protection that the property won’t sell for an unacceptable price, but it can also deter people from participating if the minimum is set too high. A reserve auction, too, offers some protection to the seller, by giving him or her time to accept, reject or counter the highest bid. But reserve auctions tend to draw less interest from bidders because the sale is not guaranteed.
That leaves absolute auctions, also known as auctions without reserve, in which the property is sold to the highest qualified bidder with no limiting conditions or amount. Of course, sellers cannot bid on their own property, either personally or through an agent. This type of auction is understandably of most interest to bidders, and observers, because they create more excitement and participation. This benefits the people selling real estate too, by drawing more prospective buyers to the auction.
Often, during minimum bid and reserve real estate auctions, the seller will signal the auctioneer that the minimum bid and it then becomes an absolute auction. When the auctioneer then publicly announces that the auction has become absolute, the excitement in the room increases considerably. I witnessed this myself when I attended my first real estate, which OwnACondo.com held in November. Whenever auctioneer Vinnie Zaffarano announced that the reserve auction had become absolute on a particular condo sale, everyone in the room perked up and the excitement grew. I have seen it time and again at vehicle auctions also, with the atmosphere becoming almost electric as the bids keep increasing to the rhythmic call of the auctioneer. After all, these are the types of auctions people are most familiar with, from seeing them on TV if they haven’t actually seen them in person.
Auctioneers, or any real estate broker conducting an auction, will encourage those listing property to take a chance and have their merchandise sold by absolute auction from the beginning, just because the added interest from those buying real estate, or anything else for that matter, so often results in a higher selling price. This is true for Internet sites such as eBay, as well as brick-and-mortar auction houses such as RealEstateAuctions.com.