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Real Estate Auction Methodologies - Reserved / Unreserved

By
Real Estate Broker/Owner with Gordon's Estate Services Ltd., Brokerage

In general, there are 3 types of auction methodologies including:

UNRESERVED AUCTION

An unreserved auction is simple and straightforward.  No minimum price will limit the bid and the property will sell regardless of price.  Although an unreserved auction will 100% of the time generate maximum interest in a property and maximize value, the method is seldom used in Canada and viewed as risky.

In an unreserved auction situation buyers have complete confidence that the property being auctioned will be sold, significantly motivating them to attend the auction or submit a bid to buy the property.  There is no purer level of transparency in an auction than unreserved.

PUBLISHED MINIMUM BID AUCTION

Utilizing the Published Minimum Bid Strategy, the Seller is committed to sell the property at or above the published minimum bid for the property.  The minimum bid is published in all advertising and is a part of the terms and conditions of the auction.  The Buyer, when attending the auction knows exactly where he stands.  If he is the high bidder at any amount over the published minimum bid, the Seller is contractually obligated to sell him the property.  If the highest bid as a result of the auction is below the published minimum bid, the seller is under no contractual obligation to sell, however the high bidder can increase his own bid to the minimum bid amount, or the Buyer and the Seller can negotiate to some middle ground between the published minimum bid and the high bid to reach a sale.

AUCTION WITH RESERE OR SUBJECT TO SELLER'S CONFIRMATION

A seller confirmation auction provides the Seller with a period of time (typically 12 to 48 hours) to accept, negotiate towards acceptance, or reject the best bid as a result of the real estate auction.  An auction advertised with a "reasonable reserve" is offered on auction day and if the reserve is not met, the property is not sold, or there is a negotiation between the Buyer and the Seller to some middle ground between the reserve and the high bid.  This reserve amount is almost never disclosed to anyone ahead of the auction and most often to no one, other than to the high bidder following the auction, if the reserve has not been met.

Any of the above methods will produce a successful result, if the person or company applying the method truly understands what they are doing and the customer that they are dealing with is truly a goal driven vs. price driven or market testing Seller.  But that is a whole other topic.

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