The Modern Method of Auction (MMoA) is reshaping how properties are bought and sold, using the power of the Internet to streamline the process. This method combines the traditional elements of property auctions with the convenience and extended reach of online platforms.
Often described as “eBay for houses,” MMoA extends the bidding period to create a more inclusive and competitive environment. Find out how MMoA differs from traditional auctions, how the process works, and the pros and cons of this modern approach.
How Does the Modern Method of Auction Compare to a Traditional Property Auction?
Traditional auctions, also known as unconditional auctions, are characterized by in-person bidding and fast decision-making. They confine buyers to a physical location and compress the process into a matter of minutes. The auctioneer’s gavel marks the point of no return, where the highest bid becomes a binding agreement to buy. A 10 percent deposit is typically paid the same day, with the rest of the money due within 28 days.
The modern method, also known as a conditional auction, extends the bidding process over a month, removes geographical barriers, and invites potential buyers to participate from the comfort of their homes or offices worldwide. The highest bidder typically has 40 business days to exchange contracts and complete the sale.
How Does the Modern Method of Auction Work?
MMoA streamlines the property selling process into an accessible, highly efficient online auction system. Here’s how it works:
- Property appraisal: The first step is to arrange a comprehensive valuation, often conducted remotely, leveraging online data to establish a guide price (what the auctioneer expects the property to sell for) and inviting the homeowner to reflect on their reserve price (the minimum sale price they’re willing to accept).
- Agreement to sell: Once convinced of the benefits of MMoA, the seller signs an agreement, similar to a real estate agent’s contract, detailing terms, fees, and auction duration.
- Legal pack preparation: Sellers compile essential documents for their property, including legal, structural, and regulatory information, to inform and protect future bids.
- Listing preparation: Sellers make repairs, stage the home, and hire professional photographers in preparation for posting the online listing.
- Going live: The property is advertised across major portals and the auction house’s network for maximum visibility.
- Viewings: Interested buyers who like what they see online can arrange to inspect the property in person. Viewings are facilitated by the auction house or the seller.
- Bids: The bidding phase sees initial offers gradually increase, with the auction house closely monitoring activity to ensure a fair and competitive process.
- Auction deadline: Upon reaching the deadline, the highest bid above the reserve price wins, marking the property as sold subject to contract.
- Completion period: A defined period of four to eight weeks allows time for the sale to finalize and the buyer to secure financing.
- Moving out: Once the sale is complete and all financial transactions have gone through, the seller moves out, and ownership is officially transferred to the buyer.
What are the Pros and Cons of the Modern Method of Auction?
MMoA has several distinct advantages:
- Speed of sale: One of the most significant advantages of MMoA for sellers is the expedited sale process compared to selling on the real estate market. At the same time, the sale is a bit more drawn out than traditional auctions, giving buyers more time to get financing in order.
- Fixed timescales: The auction comes with predetermined timelines, providing both buyers and sellers with clear expectations regarding the auction duration and completion date. This predictability aids in planning and reduces uncertainty.
- Greater buyer reach: MMoA exposes properties to a national or even global audience, increasing visibility and attracting more potential buyers.
- Fair property price: The nature of auctions helps establish the property’s “true” value, an important consideration when home prices seem to stagnate on the market.
- Reduced fall-through rates: The chances of the buyer or seller backing out of a sale at auction are far lower than transactions made through a real estate agent.
Unfortunately, MMoA also has downsides worth your consideration before buying or selling property using this method:
- Non-refundable fees: The highest bidder must pay a non-refundable reservation fee, which may deter some potential participants from throwing their hat in the ring.
- Perceived distress sale: The auction format leads some to believe that properties are being sold under duress or with underlying issues, potentially affecting the perceived value and attracting bargain hunters.
- Fixed timescales: While the set timeline can be an advantage, it may also pressure buyers and sellers to complete the sale within a timeframe that may not align with their circumstances.
- Potential for sale price to not meet expectations: Competitive bidding can drive prices up, but there’s also a risk that the final sale price may not meet the seller’s expectations. Enthusiastic bidders also risk bidding higher than they really should.
- Risk of not meeting the reserve price: If the bidding does not reach the seller’s minimum acceptable price, the property remains unsold, putting the seller back at square one.
- Limited room for negotiation: The auction format means that once the hammer falls (figuratively, in this case), there’s little to no room for negotiation on price or terms.
- Potential buyer misunderstanding: Buyers unfamiliar with the MMoA process may not fully understand the implications of their bids, leading to possible disputes or dissatisfaction.
Choose Dakil Auctioneers, Inc. for Your Real Estate Auction Needs
Dakil Auctioneers, Inc. is proud to be a family-run business serving the Oklahoma City metro area for over three decades. We facilitate both traditional in-person bidding and modern online auctions, ensuring the flexibility and convenience to meet all our clients’ needs. As one of Oklahoma’s oldest private real estate brokerages, our real estate auction expertise is unparalleled. We invite you to browse our upcoming auctions or contact us directly at (405) 751-6179 for more information on buying or selling property at auction.
