Auction Method vs Traditional Listing

Can you have your cake and eat it too? Some people say you can’t, some people say you can. With either method you chose Auction or Traditional, you have the opportunity to have it delivered!

Quite a few people ask us on a regular basis what would be good for their situation. There is no clear cut answer as the markets change, but we advise them on a regular basis what the markets look like when they ask.

Take example a person who has an Estate that has a three bedroom two bathroom house that is in need of a little paint and clean up. With the Real Estate Market as I write this being pegged on the high side of sales, more and more people may want to select the Traditional method. Commonly when listed with us, it will last no more than one or two weeks on the Traditional Market.

Some specialty properties, such as farms, or even some properties that are part of an estate can commonly go to auction because mush of the marketing is done before the day it is offered. So say you have a farm of 65 acres near a river. The land perks, but many people don’t want that much land, and much of the farming community is at capacity. The auction method would be best suited.

Here are some additional differentiations that will help you with the difference.

Auction Method

  • Marketing Plan Tailored for Your Property
  • Process Allows Price to Exceed Seller’s Expectations
  • Marketing Expenses Paid by Seller
  • Sold “As-Is, Where-Is”
  • Pre-qualified Bidders / Buyers
  • Predetermined Sale Date; Meets Seller’s Timeline and Builds Momentum for the Property

Traditional Listing

  • Marketing in a Portfolio with Many Other Properties
  • Typically Overpriced to Allow for Negotiations
  • Broker Typically Absorbs Minimal Marketing Fees
  • Post Sale Contingencies and Inspection Period
  • Possible Financing Contingencies and Marketing Delays
  • Sale Date Unknown; Buyer Determines Length of Marketing Timeline. Holding Expenses and Marketing Changes Become a Factor

Benefits: Auction Method vs. Traditional Listing

Auction Method vs Traditional Listing: There are distinct advantages & differences in each method. There is one common goal shared by both the Auctioneer & Real Estate Agent: to successfully sell the real estate & meet the needs of the Seller.  By knowing what each method has to offer, the Auction Company can evaluate the Sellers objectives and property potential to determine the most beneficial marketing plan for the Seller. Many properties are suitable for the auction method of marketing compared to the traditional listing real estate method—sometimes referred to as “private treaty” sales.

Marketing Factors
The auction method provides a defined time to sell the property. With a determined Auction date, we know precisely what date your property will sell. The Auction date creates a sense of urgency with potential buyers and the auction process will put your property in the spotlight for all to see. The auction method places multiple, qualified buyers together in the same competitive marketplace, at an established time of the Auction. Together these factors will establish the market price The seller is in control of time, thus controlling the financial impact of carrying costs.

Marketing property traditionally in a slow or down market is challenging. It is possible that the property will remain on the market for months or even years.  Typically, we see the Seller offering price reduction after price reduction to try to get ahead of the market and catch the interest of a buyer. The buyer has many available properties to choose from and it is difficult to get his/her attention. A property that remains on the market for an extended period can become stagnant in the market and become a serious drain on the seller and his/her equity. Mortgage payments, maintenance, taxes and insurance can add up to thousands of dollars a month for some properties.   In addition to carrying costs, inflation, cost of living and the time value of money are all cost that should be considered. If the seller is able to sell the property quickly, the auction method may serve the Seller’s needs more effectively.

Marketing property traditionally in a steady or up market can bring a new set of challenges and opportunities.   When selling in an up market, the traditional sales tools  becomes very inadequate to determine value. Properties are worth more today than they were yesterday.  The auction method can capture the momentum of this market as buyers pay premium prices.  This upward momentum not only assures top dollar for the Sellers property, but also attracts a vast number of potential buyers for your property. All taxes, insurance, interest and other costs have been eliminated and the property has topped the market in value.

If for some reason the property fails to sell at auction, the high bid may be considered as a valid offer on the property. The Auctioneer may begin negotiations between the high bidder and Seller to determine a sale price agreeable to both parties. In the case an agreement is not reached, the Auctioneer generally has a pre-determined time period usually specified in the listing contract to try and sell the property.  This time period can range anywhere between 30 days to six months.  Law requires the listing agreement to have a termination date.  During this time, the Auctioneer may decide to contact the buyers registered for the auction and sell the property using the traditional real estate listing method.

To list the property first before utilizing the auction method may be very counterproductive to an auction. Placing a property on the market prior to an auction, establishes a maximum or ceiling price for the property. When that price has been publicly advertised, it affects the psychology of the potential buyer and limits the current market value. In essence you are telling the world my property is not worth more that the asking price.  Auctions work best when bidders are allowed to make their own decisions regarding a property’s worth. If, after the competitive bidding process of the auction, the final outcome should fall short of the seller’s predetermined expectations, the seller still has the advantage of accepting the offer.  Again, the seller remains in control of the marketing process.

Precision Marketing
With a traditional listing, the property is one of many properties listed with the Agents/Brokers.  The property information is then distributed to other Agents/Brokers. This approach exposes the property to a larger number of people, but not necessarily the “target market” for the property. Your property may be one on a long list of properties for sale.

The marketing strategy for the sale of real estate property at auction is more customized to located potential buyers.  The auction method is an accelerated marketing campaign that usually requires an up-front investment from the seller.  This targeted and customized approach is designed to build value and create interest in the property. The marketing fees should be considered an investment rather than an expense. This marketing campaign becomes the driving force for a successful sell.

When using the auction method, the property is marketed separately, and exclusively.  This provides maximum visibility among those interested in the property.  It is a customized marketing approach, specifically targeting qualified buyers. This insures the greatest return on dollars spent.

Sale Price Determinations
In the auction process, the price of the property is negotiated upward through the competitive bidding of interested buyers.  The current market value of the property is what a buyer is willing to pay at the time of sale. Auctions establish this value and eliminate guesswork in determining the asking price through negotiating multiple offers one at a time. This eliminates unscheduled showings and long frustrating periods of negotiation.

In traditional real estate sales, the Seller determines an “asking price”.  The Seller now runs the risk of overpricing and killing interest or under pricing and selling for less than the property is worth.  The actual selling price may be negotiated over a long period of time and the maximum sales price potential is usually limited by the original “asking price”.

When property is sold using the auction method, there are usually no contingencies.  The property is generally sold “As-Is, Where-Is” with no warranties other than title. The sale of the property is not subject to financing or repairs.  This limits the liability and further financial obligations by the seller. Auction terms and conditions are set by the seller prior to the auction.  With a traditional listing, the marketing process is put on hold while the contract contingencies are being met.

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