Provided by Mossy Oak Properties
In the world of buying and selling land, auctions stand out as a quick way to transfer property from one owner to the next. When listing property on the market it can take months or even years to come to some sort of concrete agreement regarding the exact details of the sale. Further, buyers have more negotiating power under normal circumstances because they are not necessarily confined to a deadline.
On the other hand, auctions place land sellers in the driver's seat. Because sellers get to determine the time, date, location and terms of the sale, they effectively lay the groundwork for getting a higher return on the sale compared to a listing.
These factors put constraints on buyers and force them to make decisions quickly or risk losing the property to a higher bidder.
Terms to know
There are also a number of auction terms that landowners may not be aware of. Here are a few that all buyers and sellers should keep in mind, according to Tom Rayburn, managing broker, auctioneer and owner of Mossy Oak Properties AgriRec Land Company LLC in Elk Grove Village, Illinois:
- Reserve - The absolute bottom bid amount sellers are willing to accept, which is typically at or below the bottom market price.
- Buyer's premium - The commission paid by the buyer at the auction. The premium is paid in addition to the final closing price. For instance, if the buyer's premium is 4 percent, the buyer pays 104 percent of the winning bid amount at closing.
- Sealed bid method - A private auction where the seller can accept or reject any bid without the public knowing. A sealed bid protects the seller from putting a price on the property and allowing the public to repeatedly outbid each other. Instead, prospective buyers typically get one bid each that is sealed and submitted. Whoever writes down the highest number is awarded the property.
- Proxy bid - An open bidding method where buyers must submit bids publicly in predetermined increments. The bid following the previous one must be in accordance with this incremental approach.
Though not commonly used for real estate purposes, Rayburn noted personal property is commonly auctioned via proxy bidding.
"This is how eBay operates," said Rayburn. "The high bid is $15 and the next minimum bid is in $5 increments, so the next high bid would be $20."
Understanding the auction process
Depending on the structure of the auction, owners may be able to sell their land at a higher value. However, it's important that sellers are completely aware of all the terms surrounding their auction. For instance, selecting the right auctioneer can have a huge impact on the outcome of the auction, which is why sellers should do their research before moving forward, Rayburn stated.
"Don't always go with the cheapest commission auctioneer or local auctioneer because you might get what you pay for," said Rayburn. "By using an out-of-town auctioneer, you could avoid the potential for an under-the-table deal with an auctioneer and a buyer who is a friend of his. By using an outside auctioneer, you will more than likely have more bidders at the auction who can potentially push the selling price higher and make more money for you as a seller."
Though this type of backhanded behavior may not happen often, it's still best that sellers are aware of the motives driving both auctioneers and buyers.
Additionally, sellers shouldn't go into the process blind, which means having a certified land specialist helping out along the way. Because there are a multitude of legalities and fine print to go over both before and after the auction, having a knowledgeable expert to expedite the process is helpful.
Auctions may be a faster way to sell land, but it takes months to properly prepare the documents and arrangements necessary to faithfully conduct the auction. Once the auction is complete, there is still another potential 30-day period before the sale is finally closed and the deed transferred.
A specialist from Mossy Oak Properties could be the missing link to getting an auction off the ground and running without a hitch.
"Mossy Oak Properties handles the entire transaction from preparing all the market materials to coordinating any outside contractors, conducting the auction and organizing the closing," said Rayburn. "We take care of showing the property to prospective bidders and provide information to bidders so the seller doesn't have to be bothered with hundreds of requests for information. We make sure that we have both local and national bidders to help push prices higher and make more money for our clients."
Those interested in selling their land should contact Mossy Oak Properties to ensure a verified and successful auction.