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Types of Auction
Absolute Auction
In this type of auction, the seller is legally required to sell the property at the auction regardless of the final bid price.
The main advantage of an absolute auction is that it generates maximum responses from the market. Since a sale is guaranteed, buyer excitement and participation are heightened. As a result, the price of the real estate can be maximized. The main disadvantage is the lack of a safety net for the seller. The real estate is sold regardless of the owner’s price requirements. If a bidder bids one dollar on a $500,000.00 piece of property and no one else bids, the property sells for one dollar. This is often a soul-searching proposition for even the most adventurous seller.
Reserve Auction (An Auction Subject to Confirmation)
In this scenario, the high bid is reduced, in effect, to an offer not a sale. A minimum bid is not published, and the seller reserves the right to accept or reject the highest bid within a specified time – anywhere from immediately following the auction up to 72 hours after the auction concludes.
The primary advantage of the reserve auction is that the seller isn’t obligated to accept a price other than one that’s entirely acceptable. The main drawback of a reserve auction is that many prospective buyers don’t want to invest the time and expense of investigating a property when they have no certainty that they will get the property even if they are the highest bidder.
Sealed Bid Auction
A sealed bid auction generally involves accepting bids on a property in a sealed envelope, with each bidder not being aware of the other bidders’ amounts. When envelopes are opened and the high bid discovered, the seller can accept the high bid or choose from at least two ways to proceed: one avenue is to have an open outcry auction starting at the highest sealed bid amount, or to solicit another round of sealed bids from bidders.
Sealed bid is especially useful in select cases, including when there are only a few interested bidders or property with limited road frontage. The strongest advantage of the sealed bid method is that a highly motivated bidder sometimes submits a very high bid in an effort to be sure to win the property.