Farmland auctions are a popular way to dispose of property. It clearly establishes the market price between the seller and the buyer, no appraisal needed. Like flavors of ice cream, everybody has a preferred auction method and understanding why one person’s rocky road is another person’s cookies and cream helps you understand exactly what is going on.
First some concepts. Reserve is a minimum price that the seller has in mind and once the reserve is off that is an indication that the sale will happen. Terms announced on the day of the auction generally prevail over any prior published terms. Buyers are responsible for doing their own research on a parcel. The auctioneer works for the seller, not the buyer no matter how friendly or helpful they are. Letters of credit are notes from backers indicating that purchaser is “good for it”, as auctions are not contingent (aka dependent) on financing post auction. A Buyers premium is an additional fee above the auction price that is assessed to the sale price.
The traditional open cry auction has the pageantry, the free donuts and the crowd spectacle that Hollywood loves. Anybody can register and, in most cases, anybody can be the successful bidder. The social impact of an open auction works both ways. The seller may accept a lower price than they would otherwise because of the perception of “letting down” the crowd and the public review. Conversely, the bidders may extend past their budget to “prove themselves” in the public spotlight against real and perceived competitors. Knowing who you are bidding against can sometimes prematurely end bidding if the competitor is well funded, an associate or sometimes, a distant relative.
Online bidding creates a much more analytical event where bidders sit in their own machine sheds and check the current posted bid and make a calculation on raising the same. This goes out the window in the closing minutes of the auction, as most of these events have a floating or soft close that essentially extends the auction close by a set time following each raise. What is posted as a 2 PM bid close may result in a 3:30 PM actual end of bidding. Online bidding allows participants from a wide location to participate, and it removes the social conventions some follow of not bidding up your neighbor as online bidding is generally anonymous.
A sealed bid auction creates a situation where a seller can review all potential bidders and review the offers in detail. This allows for a further “final bid” or additional negotiations to reach a price. The Seller has more control over the who they treat with. They are more likely to reject bids in this setting.
A “Dutch” auction is a reversed concept where a price is set and then lowered until it gets a bid, who then gets the item at the lowered price with the accepted bid.
An Invite only auction is just what is sounds like. The format at that private event can take the form of any of the types of auctions previously discussed.
Many times, buyers encounter a hybrid of these auction types, with a seal bid offer in the paper followed by a private invite only in person auction a classic example of the use of multiple techniques to seek and discover the high price for the land.
Within the context of the auction itself, parcels may be grouped into different lots such as bare ground and building site and then the whole farm offered as additional lot. Bidders may be successful on a building site bid, only to lose out on the combination of the land and building site to another bidder. A Choice auction is where several parcels that are similar are all up for offer and the top bid gets to pick the parcel they want (and sometimes as many parcels as they want for that strike price), then the process is repeated until the seller runs out of parcels.