There are some differences in seller costs in an auction program versus traditional marketing. With an auction sale, a normal six- to 18-month marketing program is compressed into six to eight weeks or less. To accomplish this, an intense marketing and public relations campaign is required to present the property to all potential buyers, get them to on-site inspections, and eventually have them attend the auction event to bid.
These high-profile marketing expenses are a seller's cost and often are paid to the broker/auctioneer in advance of the actual auction date. These costs can range between 0.5 percent and 1.5 percent of the property's value.
In addition to marketing, a few other fees may be part of seller's expenses. Most often, a title search or a preliminary commitment to title insurance is prepared by an abstract company. This is usually in the range of a few hundred dollars, and very often is returned to the seller at settlement if the title insurance is placed by the buyer with the same company. In addition, it has become more common for the auctioneer to recommend that sellers obtain a pre-auction mechanical inspection report of the subject property for distribution to prospects as part of the property information package. This is a great sales tool for properties that are in very good condition costing in many instances less than $500.00.
This recommendation is determined on a property by property basis at the auctioneer's discretion. If a property is in obvious disrepair, an inspection report may not be beneficial to the outcome. In this case, pre auction inspections are encouraged at the buyer's expense. In either case, the auction sales contract remains non-contingent.
For a large property or portfolio, a stand-alone auction for a specific seller is structured with the marketing costs paid by that seller. Alternatively, a number of sellers with small properties can be combined into multi-property, multi-owner auctions where all sellers share the required marketing expenses.
When one considers that the auctioneer's commission is generally paid via a buyer's premium, the seller of real estate at auction has a much lower exposure to commission expenses, carrying costs and contingency risks.
Omar P. Bounds III A.A.R.E., C.E.S.,G.P.P.A.
The Bounds Auction Company
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