What is a real estate auction?

A Real Estate Auction is a method of buying and selling real estate. It is an intense and accelerated real estate marketing process that involves the public sale of property through open, competitive bidding.  In the State of Ohio, Auctions are regulated by the Ohio Department of Agriculture and consumers are protected by the Auctioneer Recovery Fund.  Additional information about regulations affecting auctions in Ohio can be found at www.ohioagriculture.gov/auction

Why are more and more sellers electing to utilize the auction method to sell real estate?

• Buyers are required to bring substantial deposits to the auction and come ready to buy
• A quick sale reduces long-term carrying costs, including taxes, mortgage payments, insurance and maintenance expenses
• An auction guarantees that the property will be sold at true market value following an open and fair bidding process
• Auctions expose the property to a large number of pre-qualified prospects
• Auctions create competition among buyers.  If many bidders like the property, an  auction price can exceed the price of a negotiated sale
• Auctions attract buyers who are already pre-qualified for financing
• The seller knows exactly when the property will sell – i.e. there is a “date certain” of sale
• The property is sold in its “AS IS” condition.  Thanks to Realty Corporation of America’s unique inspection service, the buyer is fully informed about the condition of the home – and the seller is not required to expend dollars making improvements to the property.
• The property benefits from customized, targeted and direct marketing that is specific to the property
• Utilizing the auction method of selling real estate eliminates numerous and unscheduled showings
• The seller is removed from the negotiation process

Unlike the multiple listing services, where homes are often “lost” and where there is no urgency on the part of buyers to make a decision, auctions feature an aggressive marketing program that significantly increases both interest and visibility of your property

What are the general differences between a public auction and a foreclosure?

An increasing number of sellers are electing to utilize the auction method of selling real estate. The owner is not in financial distress but has concluded that selling the property via the auction process is the most effective method to get the property sold. Selling real estate at auction is increasingly popular because auctions produce a quick sale, eliminate holding costs and feature “AS IS” and noncontingent sales. More and more people are finding that selling their real estate at auction to be the best way to maximize value in a timely manner.

A foreclosure, on the other hand, is a forced sale by creditors. These properties are often auctioned without the opportunity to preview the homes and are generally held in county offices or common pleas court buildings.

Who pays the auctioneer?

The Broker/Auctioneer's fee is paid at closing with a buyer's premium that is added to a buyer's final bid. In addition, a listing fee generally applies. Exact fees vary with each property so make sure you understand the exact costs of an auction. All auction terms and conditions (including the amount of the buyer’s premium, the closing date and required deposit to bid) are disclosed in Bidder Booklets.  If you are unclear about any bid terms, kindly contact Realty Corporation of America or ask the auctioneer prior to the auction.  Realty Corporation of America would be pleased to obtain a "preliminary settlement statement" on behalf of a seller to project your sales proceeds.

What do I need to bring to the auction in order to bid?

All that is required for a potential buyer to bid at all of our public auctions and foreclosures is cash or certified funds in the amount of the pre-determined deposit. Personal checks and letters of credit are NOT acceptable.  Exact bid terms are disclosed in a bidder booklet that is available prior to the auction.

Are auction sales contingent on inspection?

All of our sales are on an "as-is" basis. There are no warranties as to the condition and/or the fitness of the property for a particular use. We encourage buyers to do their due diligence prior to sale day for their own protection. Because properties are open for inspection well in advance of the auction date, the buyer has the opportunity to preview the home with a home inspector, interior decorator, appraiser, contractor or other experts. The buyer's bid would then reflect the results of the buyer's due diligence and facilitate an "AS IS" sale.  Kindly note that all properties sold at auction are sold with all taxes paid current through the date of the title transfer and with clear title.

If I’m a seller, do I need to disclose any property defects?

Even though a property is sold in its "AS IS" condition, all license law and real estate disclosure requirements still apply. The seller is therefore obligated to disclose any material information and all known defects about the property.  Sellers also are required to complete the required lead paint and property disclosures and abide by all Fair Housing laws.

How are auctions scheduled?

The seller has the right to choose the day and time of an auction. Auctions are effective because they expose your property to a wide array of potential buyers on a set auction date.

If I win the auction, what happens to my deposit money?

The deposit will count as a credit towards the purchase price of the property and is placed in escrow with our affiliated title company. It is the purchaser's responsibility to obtain financing. If you plan to obtain a mortgage to purchase the property, we recommend that you apply for the loan immediately. You are welcome to utilize any mortgage provider.  Realty Corporation of America’s Mortgage Affiliate would be pleased to assist. Feel free to contact Mr. John Caputo at (440) 823-5049 or visit www.realtycorpofamerica.com and click on MORTGAGE SERVICES to learn more about our mortgage products!

What happens if the buyer cannot settle on the property?

A well-conducted real estate auction by its very nature minimizes such failures. Failure to close can happen, but it is extremely rare. If failure to close occurs, the auction seller can turn to the next highest bidders, who demonstrated their willingness to pay nearly as much as the buyer who failed to close.

If the buyer fails to settle on the property, he/she will be considered in default of the sales contract. In this instance, the buyer will lose all of their deposit and potentially be responsible for the cost of reselling the property.  If you are a buyer, please make sure you can close on the property.  If you are unsure of your ability to close on the transaction, Realty Corporation of America suggests you do NOT bid at auction.

What is the difference between an absolute auction and a reserve bid auction?

An absolute auction means that the highest bidder wins the right to purchase the property regardless of price. In a "reserve bid" auction, the seller retains the right to reject any bid less than an agreed upon minimum price.  An absolute auction generates the most competition and generally leads to the strongest buyer interest in your property.

What happens if the seller cannot settle on the property?

Our service contract states that the seller must be able to deliver free and clear title to the property without any liens or judgments. All auctions conducted by Realty Corporation of America are scheduled only after receipt of a satisfactory title search. If, however, liens are located later or if free and clear title cannot be delivered by the seller, the buyer will be refunded their deposit.

In foreclosure sales, the same rule applies. If the seller cannot deliver free and clear title, the deposit is refunded and the sale is considered cancelled.

Who is responsible for closing costs?

For both foreclosures and public auctions, closing costs are divided evenly between buyer and seller. Closing costs can include, but are not limited to title fees, escrow fees, administrative fees and recording costs. In addition, taxes and rents are generally prorated as of the day of closing.

What is the Buyer's Premium?

The buyer's premium is a service charge that is added to the high bid. These premiums are disclosed on the day of the auction and in bidding material prepared in advance of the auction, so be sure you are aware of the premium that is added to your bids.  For example, if a buyer’s premium is 5% and the winning bid is $100,000, a $5,000 buyer premium is added onto the $100,000 high bid for a total consideration of $105,000.  BUYERS SHOULD TAKE INTO ACCOUNT THE BUYER’S PREMIUM WHEN BIDDING!

How can I be sure that I am getting a fair price?

The only genuine measure of value of real estate is what someone else is willing to pay for it. An appraisal is merely an informed opinion, not an offer to buy. The real measure of value of real estate, at any given time, is what it will bring under competitive bidding from informed and motivated buyers.

I have property to sell, what expenses am I responsible for?

Realty Corporation of America designs customized, energized and innovative marketing campaigns to promote all of our auctions. Sellers are generally asked to contribute towards these costs. These costs vary by property and depend on the size of the property, the marketing required to attract buyers and market conditions. Generally, properties sold at an absolute auction require little or no seller marketing support.

What factors determine the success of an auction?

• The desirability of the property being sold. This includes location, condition and surrounding properties.
• An aggressive marketing and advertising plan geared to prospective purchasers.
• Realistic expectations on the part of the seller.
• Selecting the type of auction that best suits the property and the seller's needs.
• Conducting the auction in a professional manner and following up until closing is completed and the seller has the funds in his possession!
• Undertaking due diligence ahead of time so buyers are knowledgeable and the only issue that remains is price.

If a property doesn't sell auction day is it still possible to market it?

Yes. The auction marketing method has exposed the property to a large segment of the buying public. Many times a buyer who wants the property but is uncomfortable with the auction process will make an offer after the auction date. In other instances, offers to buy the property prior to the auction date are made and accepted.

Don't real estate auctions depress home values?

No. Real estate auctions reveal the true market value of a property because auctions are conducted in an open forum where all bids are known, and participants are given immediate feedback on the property's value. At auction, values settle at the level the market can bear, neither elevated nor deflated.

How are properties usually advertised for auction?

This varies greatly depending on the type and value of the property being sold. One of the essential underpinnings for a successful auction is a highly aggressive marketing program. Each auction has its own powerful promotion and advertising. Auction marketing is an intensive effort and a well-timed plan to create massive interest in the properties available for sale. The advertising budget is established according to specific properties and the type of market that's needed to be reached. That budget is then broken down into various forms of advertising that will best target the market for the auction. The various forms of advertising are: brochures mailed directly to prospective purchasers and posted in public places, newspaper advertising in local and possibly regional or national papers, ads in trade journals and magazines, internet marketing, radio ads, signs posted on the property and possibly television and cable ads, and phone solicitation. We facilitate everything from preparing the advertisements to placing them in the desired forms. The aggressive advertising hits large groups of buyers that will come and competitively bid on property thereby yielding true fair market value for a seller's holdings.

Finally, Realty Corporation of America has a large database of interested buyers who have attended past auctions or bought real estate from our sales team.  Aggressively marketing to our “sphere” is highly beneficial to our sellers.

What are the advantages to a buyer in an auction situation?

The buyer knows the seller is fully committed to sell. Auction agreements obligate the seller to transfer title to the highest bidder in an absolute auction; the auction agreement obligates the seller to transfer title to the highest bidder that meets or exceeds the reserve price in a non-absolute offering. The buyer knows he is getting the property at a fair market price. The buyer feels comfortable with the purchase knowing that there is a contending bid just one increment under the purchase price. The buyer has negotiating power. The buyer can withdraw from the bidding at any time until the gavel falls. The buyer sees many offerings in the same place at the same time. He is able to make market comparisons quickly and easily.

Other benefits include:

• Buyers set their own purchase price.
• Auctions eliminate lengthy negotiation periods.
• Auctions reduce time to purchase property.
• Buyers do not have to worry about contingencies because purchasing and closing dates are known.
• Buyers know property owners sell at lowest price possible.
• Buyers can receive favorable financing.

How long to I have to close on the property?

The time frame varies depending upon the type of property auctioned. Generally, our contracts stipulate a 30 day settlement from auction day to closing. Please see the specific terms for each auction to determine the length of time to close.

Why should real estate agents look favorably on auctions?

Increasingly, real estate agents are discovering the benefits of real estate auctions. They are realizing that auctions promote activity in an industry that thrives on activity. Agents can get involved in auctions themselves. If an agent brings a buyer to an auction, and that buyer purchases property, the agent receives a commission. A single auction for one development might bring in dozens or even hundreds of prospective buyers who are now in the real estate agent's market area.

Other benefits that auctions provide are:

• Provides a list of ready and qualified buyers.
• Offers clients and customers new selling and purchasing options.
• Increases market share and revenue - new business opportunities are added.
• Enhances company's image.
• Develops your own market niche - agents are able to offer new products and services other agents aren't providing.
• Exposes the property to many potential purchasers.
• Auctions appeal to people - it brings them in to look at all the listings you hold, not just the auction listing.
• Auctions cause referral and return business.
• Builds rapport with auction firms.
• Agents don't have to be auctioneers to earn commissions

What should I look for when attending an auction?

When attending a real estate auction, look for:

• The availability of a sales contract on-site for bidders to review.
• The ease of the registration process.
• Enthusiastic and knowledgeable staff to stimulate maximum bidding potential.
• The availability of financial or pre-qualification services to bidders by the auction company.
• A clean environment and a pleasant décor.
• The use of quality photos, slides or videotape of the property during an auction.

If you have further questions or would like to discuss auctions in greater detail, Kindly contact Sarah Brewer in Realty Corporation of America’s Auction Information Center at (216) 522-0020 x 235.  We are looking forward to hearing from you!