Auctions are one of the three methods used to sell real estate, the other two being Private Sale and Tender or Expression of Interest.
Auction is a public sale in which goods or properties are sold to the highest bidder. The price is neither set nor arrived at by negotiation but is arrived at through the process of competitive and open bidding. An auction is complete (and a binding contract is created) when a bid is accepted by the seller. Auctions are claimed to bring the highest price possible for the vendor on a particular property. It can be counterclaimed that the highest bid is just one bid higher than what others were prepared to bid and may be well below what the winning bidder was prepared to pay.
There are a few terms that we would like to briefly describe related to an auction process.
- Passed in is a term that refers to a property not being sold at auction because the owner’s reserve price was not reached. On behalf of the owner, the real estate agent would then negotiate with the highest bidder and other bidders to purchase the property at the reserve price or a new negotiated price.
- Reserve price is the minimum acceptable price predetermined by the owner of a property but which is not disclosed to the bidders at the auction. It is the lowest fixed price at which an item is offered at an auction sale and (1) at which it will be sold if no higher price is bid, or (2) below which the seller is not obligated to accept the winning bid. A reserve price is a form of insurance for the vendor against the property being sold at a low price if attendance on the day of the auction is poor due to, for example, bad weather. If the reserve price has not been reached, then the highest bidder will have the first right to negotiate a price with the vendor or his agent.
- Auctions are a popular way of selling residential real estate in Victoria, slightly more popular than New South Wales and certainly the other States.
- Dutch auction is a bidding process in which the asking price is lowered slowly (until others place a qualifying bid).
- For an auction, we have the vendor or sell wanting to sell their property, the real estate agent who undertakes the marketing and open for inspections, the auctioneer who conducts the auction on the day and most importantly the potential buyers.
Image credits: Pixabay
Keywords: auction, bidding, reserve price, passed in, dummy bidding