The world of luxury real estate auctions is very intriguing to sellers and buyers alike. This could be due to the mystery surrounding the formats of the century old process. In luxury real estate, there are generally two different types of auctions held – absolute auction and reserve auction.
An Absolute Auction is an auction in which the property is sold to the highest bidder without any guaranteed minimum (or reserve) sales price. From the seller’s perspective, advertising an auction as having no reserve price makes sense because it potentially attracts a greater number of bidders. If more bidders attend the auction, a higher price might ultimately be achieved because of heightened competition from bidders.
In an absolute auction, the buyer benefits by knowing that the property will go for the highest bid, no matter the amount of the bid. He or she can be comfortable knowing that the only thing driving the price up is the level of demand for the location. For a seller, the certainty that the property will sell at auction will ensure that they are no longer accruing the costs of financing and keeping up the luxury property while waiting for it to sell.
In a reserve auction, the property may be sold only if a ‘reserve” price is met that the seller has determined prior to the auction. Depending on the individual case, the reserve may or may not be published. A reserve auction might seem more attractive for the seller than an absolute auction as they are not required to accept a lower that desired bid, but this could result in a lower final price if less interest is generated in the sale. By eliminating the reserve, the property is better able to sell at market value.
Working with a trusted representative of an auction company will help determine which is right type of auction for the luxury property at stake. The goal is to obtain true market value for the property with a win-win for all involved.
