Real Estate Auctions – Hot Way to Sell or Fire Sale
My friend, L. Robert “Bob” Frame, Esq., has more energy than any three men I know which is a good thing since he is a licensed Associate Real Estate Broker, an active Pennsylvania attorney, and a licensed auctioneer coming from the background of an established family auction business. He hangs his real estate hat at Coldwell Banker Preferred in Exton and his Auctioneer practice at Frame Realty, Inc.
In Bob’s capacity as a licensed real estate auctioneer, a few weeks ago I corralled him into speaking to the Chester County Bar Association Elder Law Section that I chair. No matter how much time I spend exploring new ways to handle real estate transactions for seniors, there is always more. Bob did not disappoint.
With the down market, when seniors and their families and executors of estates are placing properties on the market, they may face the prospect with concern. As Bob noted in an article published last year in County Lines Magazine, “real estate auctions and many people conjure up images of foreclosure signs, sheriffs’ sales, and families being dragged from their homes.” His answer is simple and emphatic. “Lose those images. They’re obsolete. Instead, think about auctions as the fast and efficient way to get a deal done.” See “Beginner’s Guide to Real Estate Auctions – Going, Going, Gone.” January 26, 2009, www.countylinesmagazine.com.
Even Bob will admit, as he did to the Elder Law Section, that real estate auctions are not for every property or for every buyer or seller. They work best with distinctive properties, not average tract homes in a development. Also, there are precautions that must be taken both by buyer and seller. Before entering into a deal, there must be preparation and there are, as with all real estate sale listings, both advantages and disadvantages.
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Here are some of the considerations.
What Is a Real Estate Auction? Bob describes a real estate auction as a “process that enables multiple interested buyers to compete for the right to become the new property owner. Typically it begins with a motivated seller of a unique, somewhat difficult-to-value property. In consultation with a real estate agent, auctioneer, and perhaps other professionals, a decision is made to market aggressively and ultimately to proceed by auction. A date is set, and then comes a relatively short marketing period – typically 30-45 days – followed by the auction itself.”
Properties might be sold at absolute auction where there is no minimum bid, a minimum bid auction where a lowest acceptable price is set, or reserve auction where the seller reserves the right to accept or reject the highest bid within a specified time, usually no more than a few days. Absolute auctions are to be approached with extreme caution by sellers.
Advantages and Disadvantages.
- Competitive bidding. Competitive bidding cuts both ways. On the one hand, a low turnout could result in a lower sales price. Active live bidding from a larger group, on the other hand, could drive the price up as excitement builds.
- No Mortgage Contingency. A traditional agreement of sale may have a provision referred to as a mortgage contingency. If the buyer cannot obtain financing within a given period of time, he can walk from the deal. This is not true of auctions. Buyers must be prepared to pay regardless.
- Motivated Seller. Sellers are not only motivated to act. With the time, cost and energy invested in an auction, they are acting now.
- Buyer Determines Highest Bid Price but the Seller Sets All Other Terms. Usually sale is “as is” with no contingencies. The date for settlement, amount of the deposit and other terms are set by the seller.
For a buyer interested in a real estate auction, the question may be how to protect himself or herself if the property is not what was expected. Here, standard practice by most professional auction firms helps. A detailed Bidder’s Package or due diligence package with title report, home inspection, zoning information, plot plans and other information can be obtained prior to the auction date giving the buyer the opportunity to conduct his or her own research. The buyer might also obtain professional legal and realtor assistance once they find a property for sale from companies like landmark24.com/our-communities/savannah-and-pooler-ga.
The title report should show clear title to the property. The home inspection is intended to reveal defects. Zoning information permits the buyer to investigate the uses to which the property can be devoted. Plot plans describe the extent of the property. Potential buyers must register to be eligible to bid.
Preparation both for seller and buyer is the key.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.