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Auction FAQ's
What is an auction? The quickest way to secure capital from unproductive assets is through an auction. An auction is the process of buying and selling things by offering them up for bid, taking bids, and then selling the items to the highest bidder. In economic theory an auction is a method for determining the value of a commodity that has an undetermined or variable price.
What is a bid? A bid is an offered price from the buyer to the seller.
What is an "absentee bid"? Although it is always best for both buyers and sellers to attend a live auction, sometimes this is not possible. When an item is found in an auction listing that you are interested in, but you are not able to attend the auction, an "absentee bid" can be placed. Approved bidders can place absentee bids up to a predetermined time by the auctioneer by emailing the maximum bid you are willing to place. When the auction begins all absentee bids are processed and the winning absentee bid is determined. The winning absentee bid equals the second highest bid plus one bid increment. If there are no higher bids during the auction, you are the winner. The amount of your purchase may be less than the top value of your absentee bid, but will never be above your maximum amount.
What does "Terms of sale" mean? Generally found in print advertisements for auctions and stated by the auctioneer before an auctioneer begins, terms of sale specify the type of payment accepted, amount of buyer's premium, whether items have a minimum reserve, when items need to be removed and if real property - the acceptable amount of the down payment. Announcements on the day of sale take precedence over any other terms of sale given.
What is "Condition"? Everything is sold in "As-is condition". It is the sole responsibility of the buyer to inspect all goods prior to the sale.
What is a minimum reserve? In some cases there is a predetermined minimum reserve price that must be met before the seller will agree to sell an item. If the bidding does not reach the minimum there is no sale (but the person who puts the item up for auction still owes a fee to the auctioneer).
What is a buyer's premium? A buyer's premium is a tool auctioneers use to help defray the cost of an auction for the seller. Auctioneers typically charge a sales commission to individuals who consign goods for sale. When the buyer's premium was created it became a tool to pass this commission from the seller to the buyer. It is designed to lure sellers to the auction markets by offering them reduced selling commissions paid to the auctioneer. This commission flexibility is powerful bait that brings many desirable goods to the auction block that would not otherwise be offered. The amount of a buyer's premium is determined by the auctioneer and can range anywhere from 10% to 25%. After the "going once, going twice…sold!" exclamation at the end of a spirited bid the buyer's premium is then added on to the hammer price.
When is Sales Tax added to a purchase? Sales tax is added after the buyer's premium (if applicable) has been calculated. The price including buyer's premium is considered the selling price by the tax collectors. If there is no buyer's premium the sales tax is added to the hammer price. The percentage of the sales tax is determined by what state the auction is held.
If real estate is being sold at auction, does that mean the owner is in financial trouble? Certainly not! Look at the real estate listings that are advertised week after week using the traditional method of marketing a property. Pay close attention to how long these properties are for sale. Generally turn around time for a property at auction can be much shorter than real estate simply offered for sale. In a well-publicized auction everyone who has interest in the property is gathered together at one time and in one place. Then the bidding can start with the property going to the highest bidder (providing any minimum reserves are met).
What is a "Trustee's Sale" or "Substitute Trustee's Sale"? These terms are used when a property owner is in distress. The "Trustee" or "Substitute Trustee" is the authorized individual or individuals who are acting as agents of the court for the lender who oversees the sale process, making sure that the property is sold in a fair and equitable manner to the maximum benefit of all concerned parties. This points out that the court systems of the United States have determined that the auction method is the best way to sell a property in a fair manner.
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