If you’re getting into online auctions for real estate, it’s important to learn the differences between the types of auctions. Without this information, you might bid on an auction, only to learn that you didn’t meet the minimum – or worse, that this type of auction only accepts certain types of bids. There are three basic types of online auctions, absolute auctions, minimum bid auctions and reserve auctions.
• Absolute auction. The absolute auction is exactly what it sounds like: the highest bidder wins the property. Most auctions are absolute auctions. In this type of auction, a sale is guaranteed, no matter what the high bid. These types of auctions tend to attract the most bidders, since it’s generally your best chance to get a good deal on real estate investments. With an absolute auction, it is essential to have a bidding strategy, since you’ll be up against more competition.
• Minimum bid auction. In a minimum bid auction, the seller posts the minimum price they are willing to accept for the property. This reduces the risk for the seller, since they’ve published the lowest price they’ll accept. This also gives the buyer some assurance that they’ll be able to buy the property at or above this minimum price.
• Reserve auction. A reserve auction presents the lowest risk for the seller, since they reserve the ability to accept bids. If the reserve is not met, a seller may choose not to accept the bid and might not agree to a sale. This does present a disadvantage to bidders, since they’ll have to put time and effort into an auction that they have no guarantee of winning, even if they are the highest bidder.
When entering into online auctions, it’s important to know the difference between reserve auctions, minimum bid auctions and absolute auctions. You should also keep your own preferences in mind when looking at online auctions. For example, absolute auctions are a great deal for buyers, but they also present the biggest challenge and will require diligence on the bidder’s part to make sure they stay on top of bidding. Reserve auctions are more laid-back, since bids may not even be accepted. Minimum bid auctions are the middle-of-the-road option for many buyers, since they might not attract as many bidders.
If you’re considering purchasing commercial real estate, make sure you know which type of auction you’re bidding on. At the end of the day, it will save you a lot of time and headaches.
