Real Estate Auction: Textbook case study

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Photo above: The bidding is underway and takes 8 minutes

CASE STUDY OF A SUCCESSFUL REAL ESTATE AUCTION

Experienced real estate auction firms know how to set up a successful auction and here's a textbook example from start to finish.

Qualifying the seller: The seller in this case was a real estate agent and this was the second personal home we auctioned for his family. He was relocating and needed a quick, efficient sale that would bring market value.

The property: The sellers had lived in the townhome for 24 years and it needed complete updating, new paint and wallpaper. Location was great. Fortunately it had never been listed on MLS prior to coming to us so had no price history we had to overcome. Two other townhomes nearby had been on the market over 6 months with few showings and no offers. Both had similar floor plans and one also needed complete updating. Our goal was to reach what we felt would be fair market price of $175,000.

Issues & competition: There were several townhome communities nearby that were far newer with more amenities and cheaper prices. The subdivision where our townhome was located had a high $175/month HOA fee with few perceived amenities. The exterior of the townhomes and landscaping had great curb appeal, but the paved roads were in rough shape.

Marketing: The marketing budget was just under $2000 and was primarily a regional campaign with several national components. Over the space of 30 days, 32 buyer parties attended the inspection open house periods we hosted. In addition, local agents scheduled approximately 20 showings. Another 38 individuals from 6 states downloaded the complete auction bid package from our web site with 7 of them also downloading the recent professional inspection report (purchased as a part of the marketing budget).

Auction Terms & Conditions: Auction terms and conditions are written in a way that attracts only serious buyers. In this case there was a non-refundable deposit of $5,000. The auction purchase contract had no contingencies for financing or repairs. And the purchase had to close within 30 days.

MLS List price: Having to put a list price in MLS is the worst nightmare of any auctioneer. We typically use either the current tax assessed value, the minimum opening bid, or what we believe might be fair market price. All have different required explanations in the Remarks section which we find most agents do not ready anyway. In this case it was essential to list the property all 3 ways in the course of 30 days because agents generally search by price even though our local MLS has an "Auction" category.

Agent Participation: Two local agents faxed in the required Broker Participation Form (3% broker co-op) 24 hours prior to the auction. They are required to also attend the auction with their buyer. Both indicated an opening bid at the minimum opening bid price of $120,000.

Auction day: 5 bidders registered for the auction. Each was required to bring a cashier's check made payable to their own name to the auction. The auction was held in the large living room as temperatures outside were in the high 90s.

The bidding: All of the heavy work for an auction is the marketing that takes place in the 30-45 days leading up to the auction. the actual bidding is very quick. In this case it took 8 minutes of bidding to sell the property. Typically it got down to 2 bidders quickly. Since the they are all bound by the same terms and conditions, it's all about the money - who values the property more. Total sale price was $172,400, just short of the $175,000 we felt would be about right given the property's condition.

Closing: The closing process is identical to a conventional close except that the closing date can't slide past the deadline set in the auction purchase contract. In this case, the buyer wanted to close in 2 weeks and sellers were amenable to that. The closing was quick and painless for all. Primarily because there is nothing further to negotiate, there are no additional tests to be done because the buyer did all this homework prior to bidding.

Summary: Auction sales are quick and efficient. While the short period leading up to the auction may cause lots of stress for the seller, what is worse: having the stress of your property being on the market for months and wondering if it will ever sell and having to keep it clean for showings? Or having the process take only 30-45 days with the same price results anyway?

Both the buyers and sellers are very happy. And the buyer agent is thrilled with a quick paycheck he's earned!