Land Q&A: Selling at Absolute Auction

Editor’s Note: This is the first installment of a question-and-answer series with land real estate experts — land agents, mortgage brokers, auctioneers, attorneys, timberland professionals and more. There’s a lot of information about the national real estate market out there, but it’s tough to find answers to your specific land real estate questions — until now. LANDTHINK believes that a lot of the stress of buying, selling, and owning land can be reduced or eliminated with some simple information from industry experts.

Landowner Question:

I own farmland with a timberland component in Alabama that I’m considering selling. Can you provide figures and additional information on what percentage an absolute auction might bring relative to an appraised price or a listed price if I decide to list my land with a local broker?

Tom Brickman, Managing Broker & Principal at Cyprus Partners:

This is a very good question. Recently our brokerage sold a 130 acre property in Central Alabama via absolute auction. The auction brought almost exactly the same amount per acre as the other properties we have sold by “private treaty” in the same county over the past 12 months.

In our experience, if you decide to use auction, make sure it is absolute (you’re wasting your time otherwise). In an absolute auction, also called an auction without reserve, there is no minimum bid. The property is sold to the highest bidder, regardless of price. Additionally, make sure the auction is “multi-par” (the property is broken into pieces and offered in multiple “rounds” where high bids are “temporary” because any piece can be brought back up for sale by paying a % premium).

Our experience is that properly conducted appraisals and “private treaty” negotiated sales will reflect the current real estate market climate. Consequently, an absolute auction, like any other form of marketing, should capture full fair market value. Absolute auctions are not only for competitive markets, but they can also be helpful in a downturn.

If you decide to sell your land, there are several options available. Traditional real estate transactions, for sale by owner, and auctions are some of the most common. Traditional real estate transactions can be time-consuming and the outcome uncertain. For sale by owner may not attract enough potential buyers, and negotiations can be difficult. Absolute auctions in real estate are a unique way to sell properties quickly. The land market today is active and competitive. The biggest advantage of absolute auction is that it attracts more lookers and buyers. A sale is guaranteed, and auctions create a sense of urgency among buyers which can often lead to a higher sale price.

Absolute auctions can sound ideal, but you need to understand they aren’t perfect. Depending on the current market conditions and the characteristics of your property, auctions can drive the price up. However, the opposite is also possible. Interest in your property might be low, and the highest bid you receive might be less than you wanted to accept. Ultimately, you should weigh your options before deciding which route is best.