Five advantages of real estate auctions: An alternative method to the traditional sales process - by Jonathan Cuticelli

Jonathan Cuticelli, Sheldon Good & Company

Real estate auctions provide an alternative – and often preferred – method to the traditional sales process. An increasing number of sophisticated sellers and buyers are opting to go the auction route.  A real estate auction is an effective sales tool for all types of properties, including luxury residential and single-family homes, as well as multifamily, retail, industrial, development sites and other types of commercial properties.

While the conventional stereotype of an auction is that of a vehicle to move distressed properties, the troubled scenario no longer strictly holds true.  For example, we’re seeing an overall increase in auctions of luxury residences.  This uptick is especially apparent in second-home and resort markets, where baby boomers and empty-nesters are looking to sell their second residences. 

In general, real estate auctions offer an efficient approach to a sale that provides a number of distinct advantages.  The benefits of real estate auctions include these features.

Auctions establish the market.   An auction is a market-finding tool.  By bringing together a large group of buyers in one place to actively bid, that essentially establishes what the market can be for the property. 

They command attention. Real estate auctions work in much the same way as those for fine art and antiques.  Auctions are exciting and draw the attention of buyers from other sales occurring in the area.   They also attract interest from a wide set of potential buyers beyond the property’s immediate location.  For example, the auction of a premier condominium residence on the 29^th floor of the Ritz Carlton in New York, in the heart of Manhattan’s financial district, generated more than 5,000 inquiries from all 50 states, as well as close to 1,800 international inquiries.

The sale is completed within a definite time frame.  The traditional sales process is uncertain and can be completely unpredictable.  But a real estate auction completes the transaction within a defined period of time.  Knowing the precise date when the sale will be done often provides a real convenience for the seller.

The auction process is open and transparent.  One of the most positive aspects of a real estate auction is its transparency.  Buyers gather in a room and they see the act of bidding.  In addition, many potential buyers are unsure of the property value.  An auction sets a fair market value.  With an auction, the property is marketed with a pricing floor that has a wider appeal to a much larger pool of potential buyers.

Auctions don’t replace brokers.  Many real estate auction firms will work in collaboration with brokers.  Typically, the auction firm offers a cooperating broker fee to the agent who represents the buyer.  For the selling broker, the compensation structure in the conventional sales agreement often remains in place.

Once upon a time, real estate auctions were solely for troubled properties. Today, sellers, buyers and brokers of many different types of properties can reap the benefits of an efficient and convenient sales tool.

Jonathan Cuticelli is director of project management and principal auctioneer at Sheldon Good & Company, New York, N.Y.