Property Investment requires selling of houses almost as much as it requires buying of houses. Here are the ten key reasons why property investors need to consider using an auction instead of a negotiated sale to sell their investment property.
If the rental property investment is owned by a group of investors, then transparency is a must. The person managing the sale needs to show his fellow investors that the sale was genuine. Too many scandals involving backhanders and under the table dealings have emerged during the recession aftermath to take any risks with your credibility.
An auction is more transparent than an open sale because it is visible, and the formula is simply – the highest bidder wins the sale. This is not that case in an open sale, where the winner may just be the person who entered negotiations first, and this is too vulnerable to a sale happening because the two parties know each other.
The potential for Investment Gains
The increased potential for improved property investment gains is obvious. Buyers are competitively outbid each other. They are under more pressure to bid higher than could ever be replicated in a negotiated sale.
One of the biggest issues with a negotiated sale is contract conditions. Buyers and sellers list their conditions in the contract as to what needs to happen or what can’t happen to complete the sale.
Skilled property investors use conditions effectively. However, compared to an auction sale they can just create a hassle.
Auctions have a higher completion rate due to not having conditions placed on the sale. At the end of the auction, the buyer and seller sign on the dotted line and the sale is complete.
Conditional on Finance’
Of the conditions, the ‘conditional of finance’ is the biggest hurdle for investment property sellers. If a buyer enters the negotiations with that in the contract the seller is forced to wait and see whether the buyer gets the finance. If the buyer doesn’t come through with the finance, the seller simply has to start again with a new buyer.
The presence of cash buyers increases both the likelihood and the ease of a sale. Cash buyers make a sale easier for an obvious reason – they have the money. Even if bidders are not cash buyers they will at least be financed or have pre-approval.
Auctioneers and realtors that specialize in auctions generally have large databases of potential buyers. The database plus the strict timeline an auction offers is perfect for reducing marketing costs. Simply contact the database, put a sign out on the front lawn and conduct open homes for the next three weeks. To increase the buzz around the neighborhood a simple mailbox drop could be considered.
Compare this to the limitless marketing costs that could be involved with negotiated sales through traditional newspaper advertising that could go on indefinitely.
An open sale has no clear timeline. It can go on indefinitely. An auction sale, however, has a deadline: the end of the auction. Providing at least one buyer bids the seller has the option to complete the sale.
The open nature of a negotiated sale’s timeline means the viewing schedule can be very open for buyers and a burden for sellers. Alternatively, the contracted timeline of an auction sale reduces the amount of time a seller needs to spend showing people the property. Three weekends’ worth of open homes is often adequate.
More likely to end in a sale
An auction is more likely to end in a sale because motivated cash buyers arrive in a competitive bidding environment willing to make a sale.
Pre Auction Offers
Even before the auction takes place many property investors receive offers. For the reasons stated above sellers may not want to accept these offers. However, the fact that they have this option as well as the opportunity to take into a competitive bidding scenario really does allow for the best of both worlds.