Sealed Bids – Auction or Not?June 2nd, 2007 by PA - Bloger
In England, sealed bid auctions are becoming more and more popular. In the USA, sealed bid real property auctions are still viewed with a wary eye. The National Auctioneers Association doesn’t even consider the sealed bid auction to be an auction. Here is how their glossary section defines sealed bid, “ A method of sale utilized where confidential bids are submitted to be opened at a predetermined place and time. Not a true auction in that it does not allow for reaction from the competitive market place”.
So, according to their definition there has to be some give and take, face to face. This lets bidders witness the processes and make more informed decisions about the true value of the property that they are bidding on.
In spite of the National Auctioneer’s Association definition, real property auctions are still being conducted and advertised as sealed bid real property auctions.
A sealed bid auction can work well for many unique situations. Urban areas with choice properties that are constantly in demand may resort to sealed bid auctions as a way to be fair, yet avoid the pandemonium that ensues in a hotly contested auction where dozens of bidders might show up determined to secure a single property. Sealed bids are also often used to distribute similar properties to multiple buyers. A row of identical townhouses or other similar properties can be dispersed at the same time, saving auctioneer’s fees and time by awarding successful bidders properties in the order of the highest bid. A sealed bid format may also be used for unique properties where the market value is difficult to determine or if there is a serious shortage of available properties in the area.
Buyers can be stung in a sealed bid auction because there is a tendency to over-bid when you can’t hear what other buyers are offering. The main rules of sealed bid buying are never offer more than you can afford to pay and never offer more than you think the market can cover.
Some of the biggest real estate sales in the world have been done using the sealed bid method. The one that comes to mind first is the 5.4 Billion Dollar Auction Sale of Peter Cooper Village in NYC. A Dow Jones report Oct. 17 said it was the largest play for a single property in U.S. real estate history. Bidders were reportedly staying away fearing that the price would soar in this auction for this unique property- and it did.
While the National Auctioneer’s Association may not consider a sealed bid auction to be an auction, Fred Greder, a certified and accredited appraiser for Marketing Consultant Benchmark Agribusiness, Mason City, IA offers a great list of do’s and don’ts for sellers that want to use a sealed bid auction to market their property. In a brochure offered by the Iowa State Agricultural Extension Service he offers 7 do’s and 3 don’ts that are primarily geared towards sellers. He sums up his comments by asking the seller three simple questions; Is it appropriate? Have you created awareness through proper marketing and advertising? Can you keep the bidder’s adrenaline pumping? According to Mr. Greder, if you can answer yes to all three of these questions you are good to go.
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