If you are listing your property for sale, you may be considering an auction.
Firstly, what is an auction?
Simply put, an auction is an open process where buyers bid against each other to purchase property. Once the reserve price is reached, the highest bidder becomes the successful buyer.
Should I sell my property by auction?
The best way to decide whether or not to sell your property by auction, rather than by an advertised or negotiated price, is to speak with a real estate professional.
Auctions can be seen as the best way to sell quickly or achieve a higher price, as it creates a sense of urgency and competition between potential buyers.
This will depend on the property market at the time, how many similar properties are available to potential buyers, and how desirable your own property is.
Be aware that an auction does not guarantee that someone will offer to buy your property.
Can I have more than one agent if I sell by auction?
No. If you intend to sell by auction you will need to appoint a sole agent. You will need to sign an agency agreement with your agent, and agree on a marketing plan.
Can I sell my property before the auction takes place?
You can do this, but the auction terms and conditions must allow for it. Also, we recommend your agent’s marketing material makes it clear that offers will be considered before the auction.
If you do not want to consider offers in advance of the auction, the agent will specify in any advertising that you are not selling prior.
There are advantages and disadvantages in either approach. Requiring potential buyers to bid at the auction may get a better price, and a sale at auction is unconditional. However, the property may not sell on the auction day. Accepting an offer prior to the auction means you have a sale, but you may settle for less than an auction could achieve, and the sale may be conditional.
Prior to the auction you will need to establish a reserve price with the auctioneer and your agent. This is the lowest price that you are willing to accept for your property.
What happens at the auction?
Once bidding passes the reserve price, the property is sold to the highest bidder. You will not have the opportunity to negotiate further with that person. You therefore need to think carefully and realistically about the reserve price.
For example, you may want to think about the price you would be prepared to accept from a buyer if you were not auctioning the property. At the same time, you need to avoid setting the reserve price too high.
If the bidding does not reach the reserve price, the auctioneer will pause the auction and ask you for further instructions. At that stage you can do a number of things:
– If bidding has come close to, but not reached the reserve price, the auctioneer may suggest you agree the property be put on the market. This means the reserve price no longer applies, you are willing to accept the highest bid made when the auctioneer resumes, and the last bidder before the auction was paused will be held to his/her bid.
This approach may result in an immediate sale, but it carries a risk – once you have removed the reserve price and declared the property on the market, you must accept the highest bid, even if that is below your reserve price. You cannot negotiate on subsequent bids.
– You can tell the auctioneer the property is to be passed in. This means the auctioneer will tell the bidders that the auction is concluded, as the reserve price has not been reached. The auctioneer will usually make an attempt to generate further bids before closing the auction.
– If the property is passed in, you can negotiate with the person who made the highest bid, but you should be aware the offer may not be an unconditional one. This negotiation will continue, through your agent, after the auction has closed. You do not have to accept any offer that is made during the subsequent negotiation, and if you cannot negotiate a price and conditions that are acceptable to you, you can discuss with your agent other options for marketing.
Have you sold a property by auction before, and if so, what tips did you find useful when considering auctions as a selling option?
If you have more questions about auctions, or are considering listing your property, feel free to get in touch.