What is an Absolute Auction?
So you are reading along searching for a golf course home and you find this listing:
Eagle Hills West, Eagle - April 5, 2008 Auction at Noon on 599 N Pebble Beach Way, a 2,672 sq. ft., 2 bath, 5 bdrm 2 story "Balcony, Covered Patio". Property information High Bid benefits Make-A-Wish of Idaho.
MLS® #98347070 $0 - Absolute Auction.
And you think, huh? Why is the price zero, and what is an Absolute Auction? Well, glad you asked!
An “Absolute” auction method states that the property will sell for market value as determined by the buyer. There is no minimum or reserve price. This method of marketing attracts the most potential bidders. Buyer excitement and participation are heightened through this method. However, this method is initially perceived, by the seller, as the most risky method of marketing. This method does, in fact, generate maximum response from the marketplace.
In other words: Whenever the bidding is done and the auctioneer yells SOLD, the higest bidder wins, regardless of price! To understand this even further you can contrast this with other forms of auction.
The “Minimum Bid” auction is the method in which the seller states the minimum price they are willing to accept for their property. This marketing technique can be successful if the minimum is low enough to entice buyer interest. However, the seller sets a precedent of a low price. If the minimum is too high, not enough motivation will be generated to attend and bid in an auction.
A “Reserve” or “Seller Confirmation” auction is a marketing method in which the seller reserves the right to accept or reject the high bid for their property. The main disadvantage of a reserve auction is that prospective buyers may not invest the time and expense when there is no certainty they will be able to buy the property even if they are the highest bidder.
Some real estate auctions are for charity, but most are for sellers that are just not interested in keeping their property for an indefinate period of time. Some people automatically jump to the conclusion that it is a distressed property, like impending foreclosure or some other crisis, but really they are mostly people that want to get on with with their transaction and get back to life. Many people don't want to have people going through their property all the time and would rather have the best price possible in a time defined manner.