Auctions can be a good way to sell a property and make a little extra money for a seller.  Almost 60 billion dollars of property was auctioned in 2009, a time when the economy was headed into a recession. Many sellers found an excellent way to sell distressed properties to eager buyers looking for a deal.

There are three types of auctions. An absolute auction sells the property to the highest bidder, no matter how little the bid. The seller cannot bid for his own property at an absolute auction. Absolute sales help to coax out the best price from a buyer because they have the knowledge that the property will be sold regardless. They are a high risk to the seller however.  Another kind of auction is an auction with reserve, or reserve auction, which lets an owner decline the high bid without explanation. Unless an auction is advertised as absolute, assume it is an auction with reserve.  The last type of auction is the minimum-bid auction. This is one where the seller has established a minimum sale price; if the top bid falls short, the property does not sale.  Generally auctioneers prefer absolute auctions because they always produce a sale and commission, no matter how small.

Auctions can contain several different terms and conditions. An “As-Is” sale for instance, is a sale where the seller of the property offers no warranty as to the condition, and will not fix any problems. In theory it could also mean that all defects are not disclosed, though it shouldn’t.  The term “No Contingencies” can mean that the winning bidders are not allowed to insert contingencies or change terms of the purchase contract they sign at the auction’s end. Financing must be in place, and available within 15 to 30 days, for closing. Some auctions even have lenders on site for financing. The bidder must know everything there is to know about the property or risk losing a deposit of 10% or more to back out of the contract. Auctioneers sometimes encourage sellers to divide a larger property. By doing this the auctioneer is able to auction off each parcel, then bidders are allowed to combine parcels however they want, and finally the property is bid as an entirety. Auctioneers hope to boost the final price and keep bidders fighting over different arrangements. This process can be very confusing and cutthroat for many first time buyers. It is always recommended to have a lawyer look over these contracts.

Bidders should understand the rules of an auction.  Just before the auction begins rules will be announced. These rules trump any rules advertised prior to the auction. Auctions are usually videotaped for legal record. Bidders are allowed to ask questions before an auction begins. Helpful questions to ask are: Is the auctioneer, his associates, or owner bidding? If so, identify them. Does the seller know of any defects to the property that would harm the buyer’s use? Does the seller guarantee that the title is defect free?

Know what your maximum bid, or red price, is before going to the auction and stick to it. Bring a friend to observe other bidders and gauge their interest. Inexperienced bidders should take caution; do not be too focused on beating the competition, focus on the object to be sold. Remember auctions are to benefit the seller, not buyers (though buyers can find good deals). The 3 R’s can help greatly: Research, Rationality, and Red Price.

The National Auctioneers Associations has posted its Code of Ethics at http://www.auctioneers.org/

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