Buying and selling real estate is a complex process that requires thorough planning, research, and preparation. With different ways to promote and find properties, many people turn to real estate auctions to accelerate the process and save both time and resources. However, there are various types of property auctions you can choose from, which can become quite frustrating if you don’t know their unique characteristics. That’s why, in this article, we’ll elaborate on the different types of real estate auctions and what they’re based on.
To better understand which option fits your needs best, we’ll also explain their advantages and the most common reasons why people choose them.
Continue reading to discover what are the different types of real estate auctions and their features!
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What are Real Estate Auctions
Before we dive into the types of real estate auctions, we first want to explain what these events consist of. In simple terms, a property auction is a public sale event that focuses on buying and selling real estate. During this process, participants interested in residential and commercial lots compete by making bids for a chance to win the auction. In most cases, the property is sold to the highest bidder during the auction event to ensure a fast and successful selling process.
Types of Real Estate Auctions
While the main focus point of real estate auction is selling a property through a bidding process, there are different auction types based on their participants, transparency, and characteristics. If you’re looking for the best real estate auctions, it’s important to know which type fits your needs most. So, what are the different types of real estate auctions?
In general, the two main types of auctions are traditional and modern. While a traditional auction is conducted in a real-life physical location, modern auctions are commonly conducted through online platforms. Even though both options offer a dynamic and fast-paced environment, many believe that online auctions allow participants to get a better overview of the properties before the bidding starts.
Even though traditional and modern auctions are the two main categories, there are multiple additional types of auction events based on the bidding process and participants. To better understand their unique characteristics, we’ll elaborate on the most popular options for real estate, which are as follows:
- Open auction
- Closed auction
- Absolute auction
- Dutch auction
- Minimum bid auction
- Reserve auction
Open auction
As the name implies, an open auction is a public auction with a transparent bidding process. They can be held in physical locations and on online platforms and allow the participants to view the competing bids and adjust their bidding strategy accordingly. To further enhance the dynamic environment, auctioneers commonly announce the latest bids that have been made, further encouraging the participants to compete for the property. For someone to win an open auction, they have to be the highest bidder without any competitors left.
Closed auction
Unlike open auctions, closed auctions are public auction events where the bids are hidden from the participants, often referred to as sealed bidding. Since the bids are submitted privately, the participants are encouraged to make their best offer without knowing the competitors’ strategy. At the end of the auction, the bids are revealed, and the property is sold to the highest bidder. While in a traditional setting, the bidding process is usually conducted by submitting the bid in an envelope, online auctions have confidential platforms where the bids are automatically hidden.
Absolute auction
An absolute auction guarantees a sale during the auction event, regardless of the original property value. Since these auctions don’t have a reserve price or minimum bid, the real estate will be sold to the highest bidder even though the pricing may fall below the average market value. Furthermore, these events are designed to ensure a fast sale, making them ideal for distressed properties under foreclosure. Due to the guaranteed sale, these auction types are known to attract more buyers by creating a sense of urgency and removing uncertainty.
Dutch auction
One popular variation of a traditional auction is known as a Dutch auction. Unlike the previous auction types, which were based on ascending pricing, this auction event is often referred to as a descending price auction due to its unique bidding process. While ascending auctions raise the price of the property by each bid, the Dutch auction starts at a very high price, which gradually lowers until someone makes a bid. The property is most commonly sold to the first person to bid on it.
Even though this auction type is rare in real estate, it’s most commonly applied for high-demand properties. Due to its unique pricing strategy, these auctions are fairly fast-paced, even though the seller risks selling the real estate for a lower price if the participants hold out for too long.
Minimum bid auction
Minimum bid auctions are another type of ascending price auction that allows the seller to set a reserve price that must be met or exceeded for the property to be sold. By setting such a threshold, the property seller can protect themself from underselling their real estate.
Even though it’s commonly seen as a protective measure for the seller, some bidders may be discouraged from bidding if the minimum bid price is set too high. That’s why it’s important to always conduct thorough market research to determine a fair price that’s suitable for both the seller and the auction participants.
Reserve auction
The last type of real estate auction you should know is the reserve auction. Similar to the minimum bid auction, this auction type allows the seller to set a reserve price, but they will have the opportunity to decline the highest bid if the pricing doesn’t meet their expectations. Even though the highest bidder may have exceeded the minimum threshold, it’s still up to the seller to accept or reject the final offer.
Source: shutterstock.com / Photo Contributor: Srdjan Randjelovic
Conclusion
After discovering the main types of real estate auctions, remember to always choose the option that fits your unique needs and circumstances best. While some actions guarantee a sale, others allow the seller to set a minimum reserve price to prevent selling the property for less than its original value. Before you decide on the right auction type, we recommend conducting thorough research to get well-acquainted with all the necessary rules and regulations regarding the auction process.
Lastly, if you’re interested in buying or selling land through a trustworthy auction process, contact us at the Auction Section, and we’ll happily explain the process. Not only do we specialize in different types of property auctions, but we also ensure a dynamic and competitive environment where you can get a fair price for the property. So, contact us today and let us help you find your dream house or get the most desirable price for your real estate!
