Day of bidding: registration and contract oversight

During the day of the auction before bidding starts, the listing broker or his agent hold an open house on the property. The agent and buyer need to arrive early for the auction event to use the open house period to conduct a final review of the property prior to bidding, and observe the conduct of the other bidders.

The agent will walk the bidder through registration in accordance with the procedures of the auction company. On registration, the buyer will receive a bidding paddle used during the bidding itself to indicate the buyer intends to bid at the price being pitched by the auctioneer.

If not previously received, the buyer must be presented with the mandatory property disclosures prior to the bidding, such as the TDS and NHD, and any other reports the listing broker or seller has obtained.

Depending on the auction itself, the auction company may dress up the property, implement dramatic lighting, and provide food and live music. All this is done to excite the bidders and appeal to their emotions, a ploy to push them into rash decisions driven by visceral emotion, not careful analysis. The agent must be sure to temper the buyer’s competitive instincts and hold him to their pricing strategy.

Before the bidding begins, a brief explanation of the bidding process is presented by the auctioneer, generally by using some form of voice amplification.

Bidding starts at a price set by the seller and the amount sought by the auctioneer increases incrementally in relation to the bids made. In addition to the auctioneer, most auction companies employ a caller, also called a crier. During bidding, the caller acts as the auctioneer’s eyes and ears, scanning the bidders for bids, calling back to the auctioneer when a bid is made and increasing the tension.

The bidding itself is typically very quick, lasting approximately five to ten minutes.

The agent’s use of a checklist of the paper work expected will keep him from overlooking documents and provisions.

Bidding closes once the highest bid is received since the highest bid cancels all lower bids. If the agent’s buyer happens to be the highest bidder, the agent will then accompany the buyer into the contract signing room. Here, the agent will carefully review the purchase contract before his buyer signs it.  Again, the agent’s use of a checklist of the paper work expected will keep him from overlooking documents and provisions, or being confronted with paperwork that the listing broker or auctioneer had not previously mentioned.

Absolute vs. reserve auctions

There are two general types of auctions instigated by private owners:

  • the absolute auction, in which the private owner agrees to unilaterally accept the highest bid; and
  • the reserve auction, in which the private owner sets an undisclosed minimum price he would accept for the property, and if the highest bid doesn’t reach this minimum amount, the owner doesn’t accept any of the bids and retains the property.

If the buyer is participating in an absolute auction, the owner will automatically accept the last bid since it is the highest received, and thus completes the sale. The buyer then obtains financing to close the transaction (another activity in which the agent can render assistance).

However, if the auction is a reserve auction and the highest bid does not reach the level of the owner’s minimum price requirement, the owner can reject the highest bid and refuse to sell the property.

If the agent’s buyer is the highest bidder, the agent accompanies him to the signing room and provides oversight for the contract signing, the final step of the auction. The purchase agreement used by the auction company must conform to California law for single family, one-to-four residential unit properties and contain all the statutory requirements, including the agency law disclosure and the confirmation of each agent’s agency relationship in the transaction.

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