Variety in Real Estate Auctions

Jan 26, 2024 | Hall and Hall
Variety in Real Estate Auctions

There have been many debates within the industry regarding the pros and cons of the absolute versus reserve auction method. As a seller, you should at least be aware of the two options and be able to ask appropriate questions regarding each method.


Absolute Auction

In an absolute auction, the seller grants the auction company the right to advertise and promote the property as an ABSOLUTE AUCTION. The seller acknowledges that at an absolute auction the HIGH BID MUST BE ACCEPTED by the seller REGARDLESS OF PRICE and/or associated liabilities. At the conclusion of the auction, the seller promptly enters into a sale contract with the high bidder. One advantage to the seller, in this method, is that buyers will be motivated to bid because the property is guaranteed to sell.

Reserve Auction

In a reserve auction, acceptance of any auction bid is subject to the seller’s approval in the seller’s sole discretion. The seller is obligated to communicate to the auction company its acceptance or rejection of bids before the auction is completed. If the seller accepts a bid, they shall promptly enter into a sale contract with the buyer. Some auction companies will have the reserve price written in the contract when you hire them. This allows for no question as to what the minimum price for the property should be. Some companies may leave that out of the contract and let the market dictate where the price should be.


In most cases involving a reserve auction, the auction company will require a minimum fee to help cover some of their hard costs should the seller elect not to accept the bid price. Personally, I have always believed this requirement keeps an auction company from running around the country doing free appraisals. When utilizing reserve, some companies choose to advertise the reserve while others sell with a non-disclosed reserve.


Are real estate auctions risky?

Viewed in a vacuum, a real estate auction may appear to be risky. However, viewed in the context of a properly executed auction program, there is virtually no risk. AND the benefits far outweigh any possible risks. Remember, in reserve auctions, you are not required to accept the highest bid if it is not acceptable. The great benefit is that a well-executed marketing plan will unearth and identify everyone in the world that has an interest in your property. It will also set the market value on that day. Some auctioneers will argue that an absolute auction is the only way to go. In certain parts of the country I would agree, again location, location, location. There are areas where potential buyers have spent time getting qualified to purchase only to find out the seller never intended to sell or wanted too much for the property to begin with.

I believe it is imperative for a seller and the auctioneer or auction company representative to spend ample time understanding the market together and understanding the marketing plan that will be utilized. I also believe that depending on the asset type, a reserve auction may be the best bet. A client should never be put in a position where the auction process becomes a high-risk endeavor.

My siblings and I have inherited a property, but we cannot agree on a price. How should we price it?

This scenario is suited well for an auction. The auction company does massive promotion and brings everyone together on a designated day. The world knows about it and all the most positive attributes are showcased. Prospective buyers bid against each other in a competitive scenario so none of the siblings must decide what the market is. The market speaks for itself. No one can come back later and claim that one sibling talked everyone into what might subsequently turn out to be a bad deal. It also allows an interested sibling to enter the bidding for all or a portion of the property. A family member cannot come back later and claim they did not get a fair deal.

What type of properties make the best auctions?

Properties that lend themselves to division and properties that are highly desirable and sought after make great auctions. These properties often sell for less under traditional brokerage because interested parties are not put into a position to bid against each other to achieve the best result. Properties that lend themselves to division often do better under an auction format because it allows the market to decide what the best combinations are, and often, people are prepared to pay more per acre for the smaller parcels. So, it forces a buyer of the whole property to pay top dollar!

I have had it listed, but now I need to sell it!

Having had a property listed means that it has already had some good exposure. Auction marketing brings a date certain that the property will be sold. Under a traditional listing, there is no pressure for anyone to make a move. Auctions create a sense of urgency. It forces everyone to the table on the same day. As the seller, you now know it will be sold and you will have your money within a given time frame.

What are the steps to hire a real estate auctioneer?

Different auction companies have different areas of expertise. It is best to use a company that specializes in the type of asset that you have for sale. Ask your potential auctioneer about recent auctions and obtain a reference from each client. Solicit proposals from each company and compare them. Ask lots of questions—there are no stupid questions.

How long does a real estate auction take to put together?

Every property is different. Some properties require a Public Relations buildup in addition to traditional marketing. Promotion in certain periodicals with certain lead times is important for some more specialized properties. Certain types of properties need to be seen in the best season. Consequently, depending on numerous factors, the time frame typically runs from 8 weeks to 3 months. There are certain projects that are written about on the following pages that have taken over two years.