By Mark Shear

Auctions can maximize results when selling property: Auctions by Choice vs. foreclosure auctions

At a foreclosure auction, there is often very little specific information available about the property…In contrast, when real property (real estate) is sold at an Auction by Choice, there is a wealth of information available from the seller.

With the recent explosion of mortgagee foreclosures, it is easy to confuse the sale of real estate by foreclosure auction with selling property at an auction by choice. The difference in outcomes can be quite dramatic.

While it is not as commonplace in New England as in other parts of the country, selling property at an Auction by Choice is a tried and true method that can maximize the results for sellers and real estate professionals.

There are some fundamental differences between foreclosure and by-choice auctions that illustrate the dynamics. First and foremost, the amount of information available to potential buyers is vastly different. At a foreclosure auction, there is often very little specific information available about the property – in most cases, potential bidders are not even allowed to view the inside of the home or building being sold. In those cases, human nature dictates that bidders will assume the worst case scenario, i.e. the roof leaks, the heating system is shot, etc.

Furthermore, since the property owner and the lender are often in an adversarial relationship at the time of foreclosure, many of these auctions are postponed or cancelled and are poorly promoted or advertised along the way. These factors combine to dampen bidder interest in the property.

In contrast, when real property (real estate) is sold at an Auction by Choice, there is a wealth of information available from the seller. Previews of the property are scheduled, and inspection reports are often made available prior to the auction. Potential buyers are supplied with the same kind of information they would get from a traditional listing sheet and property showing.

The results are not surprising: informed bidders at an Auction by Choice, who are comfortable that there is nothing “hidden,” will bid up to their perceived value of the property. Whereas uninformed bidders “taking a chance” at a foreclosure auction may not bid at all or will bid at a deep discount to compensate for whatever problems they may find if they end up owning the property.

That being said, not every piece of real estate is a good candidate for a successful Auction by Choice sale. In general, a property that is highly desirable, with a seller who is truly motivated to sell at the market value, is the best scenario for a successful Auction by Choice.

A seller must be willing and able to accept what the market says the property is worth, because the auction method (when properly prepared for, advertised and conducted) will result in real offers from real buyers, as opposed to a hypothetical valuation with no actual offer. The auction process will define the market value of the property in question at the time of sale.

What is often surprising to people about this process is how much of a premium a well-conducted auction can bring. Remember that an auction works its pricing in an upward direction, with people bidding up to what they see as the value of the property; as opposed to potential buyers reacting to an “asking” price, then trying to negotiate the price down.

An Auction by Choice also generates a heightened sense of urgency and excitement, because potential buyers know that the sale is going to happen on a specific date. People who truly want the property know they have to bid high on that day to secure it. I have conducted numerous Auctions by Choice in recent years, where the sale price was tens of thousands of dollars higher than what the seller had considered asking for the property through a traditional listing approach.

Conversely, a property that has been listed traditionally for an extended period of time at an unrealistic price – because of the seller’s need (debt), or because the seller is not truly motivated to sell – will not be a good candidate for an Auction by Choice. In these cases, potential buyers are already informed about the property and have made the determination that the true market value is far less than the property’s listing price, so an auction is not going to yield a higher number.

Every auction, like every piece of property, is unique. The merits of each property and the needs (expectations) of each seller must be considered to determine whether an Auction by Choice is appropriate. In many cases, real estate professionals and qualified auctioneers can work together to generate sales that will maximize the results for all concerned.

Mark Shear is the President of Berman Auctioneers & Appraisers (now Berman Property Solutions), Worcester, MA.

Review our case studies and our testimonials from highly satisfied clients who have worked with Berman to sell their properties via Auctions by Choice.

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