Real Estate Auctions
Here at Hiller Auction, Inc. we believe the trust indicator of current market value is a properly promoted Real Estate Auction. That being said, we realize that not all sellers are willing or in some cases even able to sell their property for the current market value. We do not offer our sellers false hope just to get our sign in their front yard. We would rather be honest with you and lose the auction than make your situation worse.
The majority of our Real Estate Auctions are sold with a buyers fee. It is the seller’s choice whether to charge a buyers fee or pay commission. Sellers who choose to pay commission often add the cost of commission to their minimum selling price. Our thought is, if you are going to raise your minimum selling price to include commission, why not just charge a buyers fee? The thing that never changes is that buyers care about how much they are going to spend and sellers care how much they will receive. It’s the bottom line that is important to both, not how we get there.
There are three types of real estate auctions. They are:
Absolute Auction: In an absolute auction, the property sells to the highest bidder regardless of price. These auctions typically have the highest number of bidders because they know if they are the high bidder they will win the property. They are also the most stressful to the seller. There is always the fear that no one will show up and they will have to sell for pennies on the dollar. Buyers like absolute auctions because the seller is obligated to accept their bid. The reality is that when all interested parties attend an auction the final bid is the current market value.
Reserve Auction: In an Auction with reserve, the seller reserves the right to reject the final bid. By law, unless stated differently, all auctions are reserve auctions. This is the most common real estate auction. It takes much of the stress off the seller. They set their minimum selling price when they sign the auction contract. If on the day of the auction they decide to accept less they can, but they do not have to. As in an absolute auction, when all interested parties attend an auction the final bid is the current market value. The drawback to this type of auction is that a potential buyer might not take the time to come to the auction because they assume the seller won’t accept their high bid. Just because a seller doesn’t choose a absolute auction doesn’t mean they want more than their property is worth. If you are a serious buyer you should make time to attend a reserve auction.
Minimum Bid Auction: In a minimum bid auction there is a required opening bid that is the seller’s minimum selling price. Once the bidding starts at that price, the property sells to the highest bidder above that amount. This is the least common type of real estate auction. The only time we suggest a seller use this type of auction is if they have had the property on the market and overpriced. We use this type of auction to let the buying public know you are now willing to take less than previously advertised.
These definitions are pretty straight forward. You will never see Hiller Auction Service use phrases such as “Absolute subject to estate confirmation” Or “Minimum opening bid $10,000” when we know the seller won’t sell for that amount. We feel these practices are at a minimum unethical. We are a Minnesota company. Dan Hiller is a licensed Real Estate Broker and Kevin Hiller is a licensed Real Estate Agent. Our purchase agreements and other real estate forms are provided by the Minnesota Association of Realtors. We intend to be in business, in Minnesota, for years to come.
If you would like to hear more about the advantages a Real Estate Auction has to offer, call for a no cost no obligation consultation. If you are a potential buyer planning to attend a Real Estate Auction and would like representation that understands the auction process, please give us a call.
If this is your first experience with real estate auctions, here is some info on how our auctions work. First, we do two types of auctions, absolute (without reserve) and reserve (auctions with a minimum selling price). The majority of our auctions are done with a reserve. The most frequently asked question is “what is the minimum bid”. We can’t answer that for two reasons. First, it is our fiduciary responsibility to the seller not to. Second, sellers often accept less the day of the auction than they had previously stated. Our sellers want bidding to determine current market value. Most of our auctions are sold with an 8% buyers fee. A bid price of $100,000 with the 8% buyers fee ($8,000) will have a contract price of $108,000. Our commission splits are based on the bid price not the contract price. A 2.7% broker participation for our example would equal $2700 and Hiller Auction and Listing Company would split the remaining $5300. Our usual buyer broker split is 2.7% (check the MLS for the auction you are interested in to see what we are offering on that property).
If you are representing a buyer, this is what we expect from you:
1. Be present any time your client is at the property. This includes any open house(s) and the auction. Help them research the property.
Don’t have them call us for info on the property, that is your job.
2. Be prepared to show your client what the contract price will be and what their monthly payment will be during the auction.
3. Help your client determine the property value. Do your own market analysis on the property. What would you have listed this as if it was your listing? Let your buyer know this isn’t a “fire sale”. The auction method of marketing simply helps determine current market value. In conversations with bidders who were unsuccessful, the majority say they wish they had bid at least one more time.
If you have any other questions call Dan Hiller: 612-670-2005