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Megan Blankenship | 2022-07-13

When Is A Land Auction Right For You?

When Is A Land Auction Right For You?

What is a Land Auction?

A land auction puts your property in front of bidders. It’s a competitive process that results in a sale of the property on the day of the auction or at the end of a multi-day auction period. While many have the perception of auctions as something reserved for foreclosed properties or those that are liquidated after the owner’s death, many sellers are now choosing auctions for many property types, including land.

Types of Land Auction

There are different types of auctions, each with their own pros and cons.

Reserve Land Auction

In a reserve auction, the seller has a minimum price (or bid) they will accept. This “reserve” is negotiated with the auction company before bidding starts. If the highest bid does not meet the reserve, the seller must decide whether or not to accept the price. If they do, the land is sold under the terms of the auction.

If the seller decides not to accept a bid below the reserve, they may still be responsible for any auctioneer’s fees for selling land. It’s important for the seller to understand what fees they might owe if they don’t sell their property at an auction.

Absolute (a.k.a. “Open”) Land Auction

On the other side of the coin is the absolute — or open — auction. There is no reserve price, and the seller takes whatever the highest bid is. Absolute auctions can be exciting, with more bidders vying for the land on auction. However, the seller may have to settle for a price that is lower than what the land is worth.

Online vs. In-person Land Auctions

Both reserve and absolute auctions can be held online or in-person (or a mix of both). Online auctions accommodate buyers who cannot travel to the site of the auction. For example, Chicago residents looking for Illinois land for sale might prefer bidding from the comfort of their home rather than navigating themselves to a remote rural location. Many sellers choose to have both an online and in-person option to cover both interested local buyers and those from out of town.

Why Aren’t Land Auctions More Common?

Part of the reason for the relative rarity of land auctions is the mistaken perception that an auction is only for foreclosures or other distressed or abandoned properties. But for quick, certain sales that are largely hands-off, land auctions are becoming a good option for buyers and sellers alike.

Why Sell Land Via Auction?

Auction is a non-traditional way to liquidate land, but there are a variety of reasons that it makes good sense to consider.

Jim Ferguson, an AcrePro agent in Illinois, says, “Though interest rates have started to go up and are projected to continue a gradual rise, the land and farm sales market is still bullish. This aggressive market can make it difficult for farm and land professionals to clearly identify a market value for a farm. Over the last few months there have been several auctions in Illinois and Iowa that far outpaced what most would have projected for top sales price.”

“In my area of central Illinois I have seen several nice farms brought to market via a traditional listing. Some have been offered well below market and are normally gobbled up immediately with multiple offers. Others have appeared to be priced and marketed appropriately but surprisingly seem to sit and become stagnant. Buyer clients have told me they passed by those listings in hopes of finding the next best thing at auction,” says Jim.

Auction Has a Sell-by Date

Traditional land sales can take time, often stretching out for several months or even, occasionally, years. With a land auction, there is a guaranteed end date. The property sells on the date of the auction and closes within a set period of time (usually 30-60 days after auction).

The speed of the auction also saves the seller money in carrying costs such as property taxes and mortgage payments.

No Haggling

If you want to avoid the endless back-and-forth over price and negotiations about repairs or improvements, an auction is a good choice. Regardless of condition, properties sell “as-is” — a feature that can save sellers money and time.

The Sale Price Reflects the Market

Even in times of a real estate slowdown, auction prices tend to reflect the current market, according to Forbes. Competition drives the price towards a true market value. Sellers often find that their land sells faster via auction, even when everything else is slowing down.

Unique Properties Find Their Buyer

Land comes in all shapes and sizes, but some properties seem to struggle to find a buyer. Consider the following scenarios.

  • Scenario 1: A large tract of land is available but it’s located right next to an active agricultural outfit.
  • Scenario 2: Another piece of topographically varied land is under a conservation easement that prohibits building or development but is swampy or flooded much of the year.

In both cases, the restrictions might make selling this land problematic, but if you’re a deer hunter (scenario 1) or a duck hunter (scenario 2), you know you’ve hit the jackpot.

A land auction is a great opportunity to sell property with quirky zoning, history, or topography to people who are searching for it.

How Do Land Auctions Work?

Setting up a land auction is a fairly simple process. Each auction house has specific guidelines, but they all follow the same general process.

  1. Connect with an auctioneer that specializes in your type of property (e.g., undeveloped land, agricultural property, etc)
  2. Determine how the auctioneer gets paid (and what happens if the property does not sell).
  3. Choose an absolute or reserve auction. If you choose a reserve, set the price, then set a date.
  4. Decide on in-person, online, or a combination of bids.
  5. Set the number of days for closing after the auction ends.
  6. Sit back and watch the bids roll in (online).

What Does the Auctioneer Do?

The auctioneer handles a wide variety of tasks associated with selling your property. These include:

  • Inspecting the property to determine sales potential
  • Clearly outlining costs to the seller
  • Determining a marketing plan and providing the seller with an estimate of associated costs
  • Listing the property online and through other marketing channels
  • Preparing sales contracts
  • Collecting earnest money and executing the sales contract
  • Providing documents pertaining to the sale (for accounting purposes)

How Do I Work With Online Auction Sites?

Online auction sites provide most of the same services as in-person sites do. They allow sellers to conduct the entire sale remotely. This is an excellent option for sellers who live out of state or who are unable to travel to the property. (AcrePro offers options for in person, online, and combination auctions.)

We Can Help

“Farmland auctions are nothing new, but their post-pandemic performance has been staggering. Auctions are providing a strong benefit to sellers while at the same time commanding the larger and more aggressive buyer audience.”

“Bottom line, if getting the most from your land investment is your goal, an auction must be considered,” says Jim Ferguson.

Experienced Land Experts can walk you through the process. They can connect you with an experienced auctioneer, market the auction itself, and generally move with you every step of the way.