Types of Auctions

Types of Auctions 

This is the first in a series of posts about the auction process and how it relates to selling land in Kansas.  Many land owners are tempted to auction off their precious land investments.  If someone is trying to talk you into selling your Kansas land by auction before you sign anything make sure you understand the ins and outs of auctions. 

There are basically three main types of auctions. 

Absolute Auction

This type of auction is called and auction without a reserve meaning that the property is sold to the highest bidder, regardless of the price.  That can be a huge disadvantage if you are not aware of current market values and your property can sell well below the going rates.  In an absolute auction buyer excitement is high and the emotional aspect of getting a great deal will factor into the bidding. However, if the property is not promoted to broad enough audience then the turnout could be low and cause the price to go even lower.  In the current market there is a lot of absolute auctions with large financial institutions such as banks with defaulted loans.

Minimum Opening Bid Auction

In this type of auction the property is advertised with a published minimum bidding price.  This does provide a reduced risk for the seller because the property has to sell above the minimum.  However, since buyers already know the minimum in advance it may limit their interest. 

Reserve Auction

A reserve auction is the closest to a normal negotiated sale. The high bid is really an offer not a guaranteed sale.  The seller reserves the right to accept or reject any offer.  These types of auction may produce a buyer but more often than not the transaction falls apart at the last minute.  Usually the buyer does not invest the time and expense of due diligence prior to the auction so when they make the formal offer when they are the high bidder they might find something unacceptable and then cancel even if the seller accepted their offer. 

When considering whether to auction your Kansas lands then remember these four words...  AUCTIONS GET LOWER PRICES.  Auctioneers will promote their services and may provide evidence on the contrary but an auctioneer has a primary goal to get an auction contract and sell it no matter the price.  Many times auctioneers are licensed real estate brokers and will want to list and auction the property.  This can be very counter-productive in terms of pricing the property later if it does not sell at auction.  Whether you auction or list to sell your land just remember to consider all options carefully for your circumstances.