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8 Most Common Types Of Auctions To Sell Your Property
If you are seriously considering putting up a property for auction, your circumstances will probably fall under one of 2 reasons. Either you are forced to liquidate where speed is of the essence, or that your property is so valuable that it would reap the highest price from frenzy investors eager to snap it up.
Whatever the case, you have made your decision and intend to follow through. The next part could really send your head in a tailspin. And that is what type of auction will you be going for?
If you have always had the impression that an auction is just an… auction, then you are in for a big surprise. Because there are so many types of auctions for you to choose from that you would be excused to feel like being at a candy store.
Preparation is key in getting this right. Before we list down the most common types of auctions, you should first check with the local authorities on the legality of auctioning your own property. This is a process that varies from place to place. For example, in some places, special licenses are required for auctioneers to do their jobs.
1) Foreclosure auction
This is the one that you have probably heard the most about and don’t want to get involved in when the listed property is yours. Foreclosure auctions are usually conducted by representatives of the bank which is proceeding with the foreclosure. The lender will then make the first bid. This first bid is called a credit bid in real estate jargon. The amount of the credit bid makes up of the principle, interest, and all the related costs incurred for conducting the auction. Subsequent bidders must be able to transact a winning bid with cash or cash equivalents.
2) Weekend auction
A weekend auction is a time specific event that only takes place during… the weekend. So much for fancy names and investment jargon. This one is as simple as it gets to understand. Your property will only be available for interested buyers to preview on Saturdays and Sundays. The bidding war will start on Sunday night. The key element of why they work so well is that there is an element of scarcity at play here. Interested parties will only have so little time to assess a deal and make a move in less than 48 hours. This helps to bring up the buying temperature.
3) Absolute auction
An absolute auction is the type of listing you love as a buyer when shopping on eBay. It is the type that has no reserve price. This means that the property will be sold to the highest bidder no matter how low the final bid is. Sellers who go for this often have their hands tied by legal matters. In a way, they are “force” to go ahead with it.
4) Dutch auction
This is an event where everyone in the room goes for dinner and split the bills. Just kidding.
The name of this auction originate from the heydays of the Dutch flower wholesale industry. If you have never heard about the Tulip mania, it could be an interesting read. When the flower industry was booming and clocking phenomenal growth numbers, people were bidding for flowers like there was no tomorrow. This led to a unique way to sell them wholesale at the highest prices.
The auctioneer for a Dutch auction will start with an exuberant high price, and work downwards. The first bidder to register his bid as the price decreases win the auction. The first bid wins. This is hardcore Game theory at play. The fear of losing to someone else will lead a genuine buyer to make his move before anyone else does.
5) Reserve bid auction
If you are an active bidder who looks for good value deals in the marketplace, a reserve bid auction is probably the type that you hate the most. This is because a reserve price is set on the property. No matter how high a bid goes, the property will not be sold as long as the highest bid does not meet or exceed the reserve price. You would wonder why rules like that are tagged to auctions in the first place.
But if you look at it from a seller’s perspective, the logic behind it is as clear s daylight. If you own a valuable piece of land, you should be asking a good price for it. In fact, you should be expecting a good premium just for making it available to the open market. So the last thing you want to for a low baller to grab your asset at a price below how much you value it.
Reserve prices protect sellers while the benefit to buyers is the opportunity to acquire the asset.
6) Spot bid auction
This is the type of game that poker players love. In this type of auctions, each bidder submits 1 bid in writing. The person most generous with his bid wins the auction. Should you win, the thrill alone can send your head spinning. The psychology behind this is that each bidder only has 1 chance at it. And to maximize their chances of winning, they submit their highest possible offer. At least that’s what it’s supposed to do.
7) Sealed bid auction
This is somewhat like a spot bidding event. The difference is that each bid is sealed in an envelope to add more suspense and anticipation. It also makes it look a little more formal if you are the type of person that demands to feel important. Participants place their bids before the event commences. Other than that, it is just an additional gimmick included to spot bidding events.
8) Crazy internet auction
Just some years ago, the thought of making real estate transactions over the internet was as contrasting as water to fire. The internet is a virtual world while real estate is the most brick and mortar asset you can comprehend. During those early days, almost every investment via the internet have a scammy image. But as the virtual marketplace took off with more and more consumers getting comfortable transacting and transferring money online, real estate markets found a new lease of life.
The great thing about internet property auctions is that all the processes are programmable. This means that it is less likely that you will lose out due to weird factors. For example, you could be so engrossed with playing Angry Birds on your iPhone at the auction and missed out on what you wanted to bid for. You can set the rules, re-list, beautify your listing, etc.
With online software, you can expect reminders to come in, see how many active bidders there are, not be afraid of being judged, etc. And all that in the comfort of your home. It is the closest you can get to having full control of what you are doing. You will still be expected to prepare you house like any other though.
As mentioned in the beginning of this discussion, there are so many types of auction around that you can’t really put a number on it. But the ones mentioned above are the most widely adopted forms of auctioning. Choose carefully and do give your reserve price an extra thought.