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Ever wonder how you can tell if a property is well suited to auction? Think of your listing, then take the Two-Thirds Rule test!
Q. What properties are suitable for Auction?
A. Most properties are salable by auction. All types of real estate, including residential property (e.g., town homes, condominiums, cooperative apartments and single-family homes), commercial and industrial property, vacant land and even boat slips are sold at auction. Not all property, however, is suited for auction. If a property will only appeal to a narrow market, auction may not be the most effective marketing method.
An Auction Self-Test: The Two-Thirds Rule
One method to determine if auction is the best marketing strategy is the Two-Thirds Rule. This involves analysis of the market, property and seller situation. Generally, if two of the three parts (market, seller, property) lean towards auction, then auction should be offered to the seller as a sales option.
Market (Buyers) -- A good auction situation is one where the market is:
- A changing market
- A dull market; too much product but buyer interest is expressed
- Not enough of the property type (unique, lake front, etc.)
- An emerging market -- new developments could kick off a sales program, once some of the properties were auctioned
- A seller's market where there is known high demand and a lot of competition can take place
Seller -- A good auction situation is one where the seller:
- Needs immediate cash
- Has a partnership or marriage break-up
- Is moving out of the state
- Wants to liquidate an estate
- Is retiring
- Is an auction-minded seller
- Has a listing that is about to expire
- Has already purchased another house
- Knows the auction will bring a fair market price
- Has financial problems
- Has high carrying costs on the property
Property -- A good auction property is one that:;
- Has a lot of equity (25 percent or more)
- Is unique -- there is enough buyer/market interest to encourage competition (unique properties are difficult to appraise)
- Has a lot of high carrying costs for the owner
- Is vacant -- vacant properties may encourage vandalism
- Is difficult to appraise
NOTE: For more information on real estate auctions, contact the NATIONAL ASSOCIATION OF REALTORS® Auction Dept. at auctions@realtors.org.