You’ve weighed your options and come to the conclusion that you want to sell your land at auction. You might have heard terms such as “reserve” and “absolute” thrown around, but what do they mean?
Reserve and absolute auctions are two forms of auctions that may be beneficial depending on the goals of the seller.
What are the differences between Absolute and Reserve Auctions?
1. Reserve Auction: A land auction in which a property is not sold unless a minimum price set by the seller is met. This is great for properties with mortgages.
2. Absolute Auction: A land auction in which the highest bidder wins no matter how low the winning the bid actually is. This is ideal for an urgent sale.
The difference between Auctions and the Traditional Real Estate Sales Process
Auctions can have the benefit of introducing a competitive factor, unlike traditional real estate negotiations. In an auction, every time a bid is made, the market value is reinforced while simultaneously promoting higher bidding. Meanwhile, traditional real estate negotiations tend to consist of the buyer negotiating the seller down until they both agree on a price. Auctions provide more competition and encourage higher bidding.
Auctions also have the benefit of eradicating what could otherwise be a lengthy and costly sellout period. Many have experienced their property sell in a matter of minutes for top dollar when it would take months or even years to sell in the traditional fashion.
Here are more details regarding the two main types of auctions:
Type 1: Reserve Auction
In the process of a reserve auction, the auctioneer takes the highest or most viable bid to the seller, who then has the right to accept or reject the offer. Reserve auctions are a great way to offer properties that have mortgages, liens or other factors that need to be considered before purchasing the property.
There exists a variation of the reserve auction involving the setting of a published or unpublished minimum bid price. If the bid meets or exceeds the minimum bid, then the property is confirmed sold. Essentially, the lower the minimum bid, the higher the interest generated among bidders. It is important to note that if the minimum bid is perceived as too high, then the auction may see less interest.
Type 2: Absolute Auction
In the process of an absolute auction, the property will be sold to the highest bidder, regardless of price, with no minimums required. Absolute auctions tend to produce the most urgency among bidders, which typically translates to higher bidding. Properties in high demand and those with no mortgages or liens are often ideal candidates for absolute auctions.