Property auctions – In our Asian mindset, whenever we talked about auction, a certain negative image would flash across our minds. Perhaps, during the early days, whenever there is an auction of property, the standard story is that the owner is in trouble, banks are taking over the property and property needs to be sold off quickly for banks to recover money owed to them. Perhaps, it happened too often and it became a norm and auction became equivalent to bad debts that needed to be settled quickly.
Well, let the truth be told, the story described above is still true and it’s still happening today. It is call a mortgagee sale. However, selling a property via auction does not necessarily mean it is all bad for the seller. But, before we dive deep to dispel the negativity that surrounds the word “Auction”, let’s explore what is Auction and how does it work.
What is property auctions?
An auction is a process where the auctioneers would conduct the buying and selling of items by displaying them to potential bidders, announcing the minimum bid price, out-bidding each called price and closing the sale to the highest bidder. In the case of real estate, the property auctions can be held on site or in an office or a hotel function room in the city.
You can read more about the history of auctions from Wikipedia.
How does a typical auction works?
A common type of property auctions is called English Auction aka open ascending price auction. An auctioneer will open the first bidding price and the participants will call out their bids. Each call is higher than the last bid price. The bidder may participate directly in the auction, have a proxy to represent them or submit the bids electronically (if such system is available). The auction ends once there are no participants willing to bid further and the highest priced bidder will be the new owner of the item, subject to meeting the Reserve Price set out by the seller.
Reserve price is a minimum price that must be met in order for the item to be confirmed sold. For example, a seller has a property with a reserve price of $1.8mil. If the highest price offered during the auction is only $1.6mil, the sale will not go through even though that was the highest price in the auction of the property.
But, if the price bidded is above and beyond $1.8mil, then the auction is successful, the sale is through and everyone is happy.
What are the stages in an auction process?
[col type=”1_3″ class=”box box_border box_blue”][blockquote]Submits a request for an Auction.[/blockquote][/col]
[col type=”2_3″ class=”box box_border box_blue”]Step 1. Firstly, sellers must be convinced that one way to get their property sold quickly with a good price is via auction. The seller then submits a request to the property consultant who will then arranged with a licensed auctioneer to setup a meeting to formalize the agreement to put their property for auction.[/col]
[col type=”1_3″ class=”box box_border box_gray”][blockquote]Auction Agreement signed.[/blockquote][/col]
[col type=”2_3″ class=”box box_border box_gray”]Step 2. During the meeting, the auctioneer will explain the entire auction process, and if the seller gives the go-ahead to proceed, the seller will be signing the Auction Agreement and provide details such as address, area, tenure, maintenance charges, tenancy agreement, valuation report, floor plan, site plan, etc.
The seller will also need to pay the auction fee to the auctioneer company. This fee is payable for each auction conducted. Hence, if your property is being auctioned over 3 auction days, the auction fee payable is 3 times.
The auctioneer will also be carrying out inspection of the property, taking some photos and any other information related to the property that could help in the advertising and marketing of the property.
[col type=”1_3″ class=”box box_border box_blue”][blockquote]Appoint a Lawyer[/blockquote][/col]
[col type=”2_3″ class=”box box_border box_blue”]Step 3. Thereafter, seller will appoint a lawyer to prepare the Condition of Sale (COS). Once the lawyer has been appointed, the endorsed copy of the COS will be shared with the auctioneer company for reference and further processing.
[col type=”1_3″ class=”box box_border box_gray”][blockquote]Marketing of property[/blockquote][/col]
[col type=”2_3″ class=”box box_border box_gray”]Step 4. Marketing of the property for Auction Day. If the property is vacant, a set of keys will be passed over to the marketing agent to facilitate the viewing of the property without inconveniences caused to the seller.
If the property is tenanted, seller must inform the tenant about the intention to sell and to allow viewing to prospective buyers.
The marketing agency will also be putting up newspaper ad, banners and on any marketing platform during this period.
All inquiries received by the seller should be forwarded to the marketing agencies/property consultant. During this time, interested buyer can call the marketing agency for any information they required for the property plus any inspection if necessary.
It will also be prudent for the interested buyer to seek out bankers to ensure that funds can be available to support the financing of the property.
During this period, the marketing agency/property consultant will review and provide the necessary information to seller with regards to the Reserve Price.
[col type=”1_3″ class=”box box_border box_blue”][blockquote]Auction Day.[/blockquote][/col]
[col type=”2_3″ class=”box box_border box_blue”]Step 5. Auction Day. Typically the auction is held in a hotel. The seller and buyers will be informed of the venue.
If the property is sold during auction, the auctioneer will sign the COS and collect the deposit on behalf of the seller. The signed COS and the deposit will be forwarded to the seller’s lawyer for completion. Completion is usually about 10 weeks.
The amount for the deposit is 10% of the closing price. If the sale of property involves GST, another cheque payment for GST needs to be prepared and issued by the buyer. This cheque will also be forwarded to the lawyer.
Buyers are also required to bring along their identity card/passport, company stamp and/or Power of Attorney.
[col type=”1_3″ class=”box box_border box_gray”][blockquote]Completion of final paperwork.[/blockquote][/col]
[col type=”2_3″ class=”box box_border box_gray”]Step 6. In the signed Auction Agreement, the seller undertakes to pay the auction company the agreed commission. The typical commission amount is 2% of the closing price.
An important point to note is once the Auction Agreement is signed, if the property is sold via a private treaty sale and not during the auction, the commission is still payable to the auction company. This is in essence similar to signing an exclusive to the marketing agent to sell the property. The details of the commission structure is discussed and finalised when the auction agreement is agreed upon.
* Please note the above procedures could vary from one auctioneer to another. Please check with your property consultant.
Why should you consider Auction
Earlier in our introduction, we mentioned the negative stigma that is being associated with the word auction. While mortgagee sale is part and parcel of auction sale, the trend for owner’s sale has been picking up as well. Here are some of the reasons:
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Quick Sale – If your property is rare, in a good location and much in demand, you can expect good response and a quick sale. The time from market to sale could be very short.
Transparency – the prices are announced clearly for all to see. All prices are opened, bidded and out-bidded by the participants until a point where it is no longer worth while pursuing further. Should the price falls below the reserved price, sellers could still re-consider the pricing and conclude the sale via private treaty sale.
Gauge market price – in any market, the sellers usually want a higher price to sell and buyers looking for lower price to buy. A sale is successful only when both seller and buyer sees eye-to-eye on the prices they can agree on.
With an auction, both the seller and the buyer will get the chance to witness the kind of prices the market is willing to accept for the property.
This will give the seller a chance to consider if the property is over-priced and perhaps, to lower down its expectation so the deal can be closed and moved on.
On the other hand, this will also give a chance to the seller to sell at a higher price. Perhaps, the seller thinks its property is only worth x amount and got surprised when buyers are bidding higher than his expected selling price. It’s win-win for both party.
Higher price achievable – by the nature of an auction, participants will usually try to outbid each other so they can secure the property that they are very keen in. As a result, the prices gets higher and higher. Therefore, the potential of getting a higher price is very much possible.
Focused exposure – with auction, the buyers are usually savvy investors and they are very focused and they already have in mind what they are looking for in a property. Hence, the marketing and advertisements are tailored to these group of people and the exposure of your property will reach places that typically gets omitted. With a focused group, focused mindset and you get your ideal buyer.
Click below to find the questions to ask about property auctions
[button class=”” link=”http://www.bankrate.com/finance/real-estate/14-questions-to-ask-before-auctioning-home-1.aspx” bgcolor=”” textcolor=”” bordercolor=”” target=”_self”]14 Questions to ask when considering Property Auctions[/button]
Benefits to Seller
- Buyers are ready buyer
- Quick Sale eliminate opportunity lost
- Property sold at market value
- Exposure to pre-qualified buyers
- Get potential buyer In-Principle Loan Approval
- Seller does not involved in negotiation
- Aggressive marketing to increase interest and visibility
Benefits to Buyer
- Buys at fair market value thru competitive bidding
- Knows seller is committed to sell
- Buyers determine purchase price
- Short negotiation period
- Buying and closing dates are known
- Competing with other buyers on fair ground
- Buyer received comprehensive reports
How we can help you with property auctions?
With the joint-partnership between Propnex Realty Pte Ltd and Jones Lang LaSalle (JLL), not only the properties being marketed by JLL became available to Propnex associates, we now have access to the Auction department of JLL.
The auction arm of JLL is one of the top auctioneer company in Singapore which has clocked-in 600 over auction deals generating over $800mil. This is to say, we can now offer private treaty sales AND property auction sales at the same time for you. Plus, you get a very experienced auctioneer to sell your property at a good price. Property Auctions in Singapore is now very much the in-thing and we can use it as part of your marketing strategy.
To be a qualified and licensed auctioneer, one has to under-go tough training and get the necessary exposure before you can be qualified to be reputable auctioneer. By partnering with us today, we have broaden your options to real estate services.
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