GENERAL AUCTION LOGISTICS

Now that your auction marketing is up and running, you need to begin to prepare for the auction event itself.  This process will start where we left off in the Auction Marketing section of this manual with Consumer Response Time, Preparation to Participate & Auction Registration and Participation and will move on to Auction Day Preparation and Auction Day Activities.

Response Time

Consumers will use this time to conduct their due diligence, review property information packets and become comfortable with property.

A property information packet (PIP) should include all of the property due diligence information you collected during the property listing agreement (refer to the Due Diligence page in the Auction Listing Strategies section for a list), a copy of your terms and conditions, sample purchase agreement and any pertinent info to provide potential bidders full disclosure of what they’re purchasing.

The packet should be available to view and/or download on your website prior to the auction and should include a signed proof of receipt from all potential bidders stating they have reviewed and understand the items and terms laid out within the packet (receipt required prior to registering for the auction).  Refer to the Document Center for a sample Property Information Packet.

The auction terms and conditions are the legal terms that govern the conduct of the sale including acceptable methods of payment, terms, buyer’s premiums, delivery, storage, reserves, closing details, etc. A portion of the terms and conditions are typically included in both the Auction Listing Agreement and Auction Purchase & Sale Agreement, and are published in advertisements. 

Full terms and conditions are published within online auction information, included property information packets and announced by the auctioneer prior to the start of the auction.  The auction process is designed to be simple, straightforward, transparent and fair to all parties.  The terms and conditions must apply equally to all potential bidders and signed proof of receipt of the terms and conditions should be required before consumers may register to participate in the auction. 

Refer to the Document Center for a sample Terms and Conditions Document.

 

Items included in Terms and Conditions:

  1. Property Preview/Inspection Information
    1. Sample Provision: All interested bidders are highly encouraged to view the property prior to placing any bids at the auction. The property shall be shown by appointment only.  To inspect the property prior to auction day, contact the broker in charge, _______.
  2. Bidder Packages
    1. Sample Provision: An informational packet relating to the property may be obtained by prospective bidders by contacting the Auction Company Bidder Packages are not designed to replace the bidder’s responsibility of conducting their own due diligence with respect to any Auction Properties. It is solely a source of information which has been gathered and designed to help Bidders with the inspection and informational process.
  3. Auction Registration
    1. Sample Provision: Onsite Bidders will be required to register with a photo ID, onsite at the auction. A copy of the auction terms and conditions will be present for ALL bidders to review prior to registering and accepting a bidder’s number at the auction. All bidders shall be required to use a registered bidder’s number to place any bid at the auction.  Registration will begin approximately 1 hour prior to the announced auction time  ONLINE BIDDERS will be required to deposit $5,000 registration deposit and sign the Terms and Conditions of Auction, prior to being approved to bid online.
  4. Buyers Premium
    1. Sample Provision: A Ten Percent (10%) Buyers Premium shall be added to the high bid to arrive at the Total Contract Price of the property to be paid by the Buyer.
  5. Winning Bidder Requirements
    1. Sample Provision: The winning bidder (onsite or online) will be required to place Ten Percent (10%) of the total contract price down and sign an auction purchase agreement, immediately following the auction. Acceptable forms of the down payment shall be cash, cashier’s check or business check and shall be payable to _____ Title Company. The balance of the purchase price shall be due from the buyer at closing. This auction is not contingent upon the seller’s ability to obtain financing.
  6. Closing and Possession
    1. Sample Provision: Closing shall be within Thirty (30) days following the date of auction. Possession shall be delivered to the buyer at closing and transfer of title. All escrow monies and the Closing shall be held with ____ Title Company, TITLE COMPANY ADDRESS. The closing agent is ______, and their contact information is PHONE NUMBER, EMAIL ADDRESS.  Seller shall furnish the buyer an Owner’s Title Insurance Policy covering the described property, in the amount of the total purchase price and shall transfer title with a Warranty Deed.
  7. Taxes
    1. Sample Provision: The CURRENT YEAR property taxes shall be prorated to the date of closing. The PRIOR YEAR and any prior year’s taxes shall be paid in full by Seller, prior to closing.
  8. Easements And Leases:
    1. Sample Provision: Sale of said property is subject to any and all easement of record and any and all leases.
  9. Agency:
    1. Sample Provision: United Country – COMPANY NAME, and our agents, representatives, auctioneers and employees are Exclusive Agents of the Seller
  10. Auction Procedure:
    1. Sample Provision: The auctioneer shall at his sole discretion offer the property in any order, format or bid increment, which he determines is in the best interest of the Seller.
  11. Broker Participation:
    1. Sample Provision: A Two Percent (2%) buyer’s broker commission will be paid to any properly licensed real estate broker who properly registers, attends and represents a winning buyer, which successfully closes on the property All commissions (including Buyers Broker Fees) shall be paid out of closing. To qualify for a Buyer’s Broker Commission, the real estate broker must be a licensed real estate broker who is not prohibited by law from being paid such commission and has completed the required Buyer’s Broker Registration Form provided by the auction company.
    2.  
    3. (See Document Center for sample broker participation form).
  12. Disclaimer:
    1. Sample Provision: The information given in this auction is subject to inspection and verification by all parties No liability for its accuracy, errors or omissions is assumed by the Seller, Auctioneer or its Agent(s). Any information contained in the listing and all related materials are subject to the terms and conditions of the Auction Purchase and Sale Agreement. The property is being sold “As Is, Where Is” with all faults. Bidder’s complete inspection of the property is highly recommended prior to placing any bids at the auction. Any announcements made on auction day will take precedence over all printed materials. Any of the properties listed may be withdrawn or modified without notice at any time. The Seller and Auctioneer reserve the right to refuse admittance to or expel anyone from the auction activities who may create a distraction from the auction, bid rigging, canvassing, soliciting or other reasons deemed necessary by the auctioneer. All monies bid and/or paid in this auction shall be in U.S. currency only.

A non-disclosure agreement (NDA) is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to.  NDAs are common with commercial or high-profile properties in which the seller may wish to provide as much information to potential bidders while not allowing specific property attributes known to the general public. 

See Document Center  for a sample Non-Disclosure Agreement.

The property preview and inspection period is an essential step to allow interested buyers to come and inspect the property for further aide in their own property due diligence process. Because auctions are typically sold “As Is, Where Is, With All Faults”, interested parties will need to do their own full due diligence (including all inspections and appraisals) before registering to bid at the auction, they will be required to go under a legally binding contract immediately after being declared the winning bidder, there is no room in the auction process for buyer’s remorse. 

Keys to a Successful Preview:

Work with the seller to coordinate preview activities.

Limit previews/inspections to be available by appointment only.

Only qualified staff with extensive knowledge about the do’s and don’ts of auction buyer communication should be present with potential bidders during the preview/inspections to shepherd their way to becoming an active participant on auction day.

Maintain a preview/inspection showing log. This will help keep all your potential bidders contact information in one place and can be used in your auction marketing reports with you seller.

Provide as much detail as possible during the visit and give them a hard copy of the Property Information Packet.

Ask relevant questions including where they saw the auction marketed (proof of marketing performance), what their interest is in the property (what key elements drew them to the sale?), what their action plan is (is there potential for another sale? – would they be interested in other sales?), etc.

Remain in contact with visitors through the auction day and add them to your contact database lists for future marketing.

Preparation to Participate in the Auction

Consumers will use this time to get their bank or financial processes covered. 

Let’s get something straight right out of the gate:  Auctions Are Not Contingent on Buyer Financing. This doesn’t necessarily mean potential bidders must bring their full cash offer to the auction.  It simply means they have to secure funds or financing prior to the auction.  Qualified bidders can typically obtain a conventional loan when they need financing on an auction property.  They will need to get fully pre-approved (not pre-qualified) and request the highest amount they would be willing to spend at the auction including any buyer’s premiums and closing costs. 

As we previously mentioned, auctions typically sold “As Is, Where Is” With All Faults” meaning if any inspections or appraisals are required by their lender, they will need to get them completed on their own during the preview/inspection period.

Most auction companies will require all bidders (cash buyers and financed buyers) to provide a bank letter of guarantee to the auction. A bank guarantee serves as a promise from a commercial bank that it will assume liability for a particular debtor if its contractual obligations are not met. In other words, the bank offers to stand as the guarantor on behalf of a customer in a transaction. Most bank guarantees carry a fee equal to a small percentage amount of the entire contract, normally 0.5 to 1.5 percent of the guaranteed amount. 

To request a guarantee, the account holder contacts the bank and fills out an application that identifies the amount of and reasons for the guarantee. Typical applications stipulate a specific period of time for which the guarantee should be valid, any special conditions for payment and details about the beneficiary.

Sometimes the bank requires collateral. This can be in the form of a pledge agreement for assets, such as stocks, bonds, or cash accounts. Liquid assets are generally not acceptable as collateral.

Bidders may be required to bring a registration fee to register to bid at the auction. Different auction companies approach the registration fee differently and some simply do not require the fee at all.

Refundable registration fees - if the bidder is the winning bidder, the registration fee is applied to part of the down payment/earnest money requirement, if they’re not the winning bidder it is refunded fully after the auction.

Nonrefundable registration fees – mostly used in online auctions, an auction company may use registration fees to cover their costs for online bidding platforms, credit card transaction fees, etc. Each bidder is required to deposit a non-refundable registration fee in order to register to bid at the auction.  This fee is not refunded to any party after the auction nor is it applied toward the down payment/earnest money.

Winning bidders will likely also be required to place a 5-10% down of the total contract price (ie: the winning bid amount plus the buyer’s premium) in the form of cash, certified check or cashier’s check payable to the title company immediately following the auction. This is standard with all real estate auctions. 

Registration & Participation

At this point, the consumer has done their due diligence, has their bank letter in hand and is registering to participate in the auction. Registration procedures will vary greatly based on the type of property being auctioned, the method it is being offered at auction and simple preferences an auction company has from previous experiences.  For example, an auction company may allow for pre-registration (registration before the auction day) or may require registration at a specific time immediately before the auction (at a registration table/desk at the auction site).  Online auctions may offer an online registration or require bidders to mail their information in before being approved by the auction company. 

Typical Registration Requirements & Procedures Include:

Bank Letter of Guarantee

Credit Card Holds

Registration Fees

Signed Terms and Conditions

Signed Non-Disclosure Agreements (if using)

Signed Bidder Registration Forms 

Signed Buyer Broker Registration Forms

(See Document Center for samples of these documents)

Pre-Auction Offers

A full webinar on this topic is available HERE.

A pre-auction offer is an offer that is made for the property before the auction date. If the seller is willing to accept the offer, the auction may be cancelled. While you may be hesitant to present the pre-auction offer to your client because of the amount of work you’ve put into the auction marketing and auction process in general, you must remember that as a licensed auctioneer, broker or sales person, you must legally present every offer to your seller. 

You also should not dictate to your whether or to accept or reject the offer.   If you dictate whether to accept or reject the offer, you are taking on liability.  If you tell them not to accept and the auction brings less than the offer, you can be held liable.  If you tell them to accept and they come across someone that was waiting for the auction and would have bid more, whether or not that is true, you can be held liable.  The auction is your seller’s auction and you are a service provider.  Your job is to give them supporting information about the market and remind them of their pricing expectations so they can make a well informed decision of their own.

If they accept the offer, make sure you require the buyer to sign the Auction Purchase and Sale Agreement.  This will protect your seller by keeping out all of the contingencies a typical real estate transaction has, limiting the risk that the deal will fall through and having to restart the entire auction process (including the marketing, which will incur a new marketing budget) over.  Requiring a pre-auction buyer to place a good amount of money down will further ensure the deal will close.  If a buyer wants to stop the auction process, they should be ready to accept all of the terms and conditions they would have as a bidder at the auction. 

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