Once the bidding goes over the Auction Guarantee Sales Price (reserve price) the auction guarantor has no obligation to bid or buy the property, rather they have a choice. They can either;
* Take no further part in the auction and simply receive their share of the profit.
* They can continue to bid and if they’re not the highest bidder, they simply receive their share of the profit.
* They can continue to bid and if they are the highest bidder, the actual price they pay for the property is their winning bid less their share of the profit.
What Happens if the Bid Goes Over the Reserve Price & the Auction Guarantor is the Highest Bidder
What Happens if the Bid is Over the Reserve Price & the Highest Bidder is Not the Auction Guarantor
The following examples demonstrate what can happen if the bidding goes over the Auction Guarantee Sale Price.
Example 1 - The highest bid is over the Auction Guarantee Sale Price and is made by the Auction Guarantor
The Seller & Auction Guarantor agreed prior to the auction to the following.
- Auction Guarantee Sale Price - $600,000
- Agreed Profit Share - Seller – 80% & Auction Guarantor – 20%
On auction day the highest bid was $640,000 and was made by the Auction Guarantor.
In this example as the highest bid was over the Auction Guarantee Sale Price the Auction Guarantor had a choice to either place a bid/s or place no bids.
In this example the Auction Guarantor decided to bid and was the highest bidder. This means they are obligated to buy the property.
As the highest bid was over the Auction Guarantee Sale Price the profit share agreement between the Auction Guarantor & the Seller was triggered.
The total profit share is the difference between the winning bid and the reserve price or in this example $40,000.
This is calculated by subtracting the $600,000 Auction Guarantee Sale Price from the $640,000 highest bid.
The Profit Share for the Seller & Auction Guarantor is calculated below.
The Seller’s Profit Share = $32,000 (80% of the $40,000 profit),
The Auction Guarantor’s Profit Share = $8,000 (20% of the $40,000 profit)
So in summary the Seller receives a total of $632,000 for their property, which is made up of the $600,000 Auction Guarantee Sale Price plus their $32,000 profit share.
If you think about it, the Auction Guarantee System provided the Seller with certainty that they would receive at least $600,000 for his property and in this case they also enjoyed an extra $32,000 because of the auction environment.
For the Auction Guarantor, although their highest bid was $640,000, the property only costs them $632,000.
This is calculated by subtracting their $8,000 profit share from their $640,000 winning bid.
If you think about it the Auction Guarantee System has allowed the Auction Guarantor to buy the property below market value.
Example 2 - The highest bid is over the Auction Guarantee Sale Price and is Not made by the Auction Guarantor
The Seller & Auction Guarantor agreed prior to the auction to the following.
- Auction Guarantee Sale Price - $500,000
- Agreed Profit Share - Auction Guarantor – the lower of $5,000 or 50% of the profit & the Seller to receive the balance of the profit.
On auction day the highest bid was $550,000 and was made by a Third Party (who is obligated to buy the property for $550,000).
In this example as the highest bid was over the Auction Guarantee Sale Price the Auction Guarantor had a choice to either place a bid/s or place no bids.
In this example the Auction Guarantor decided to bid but they were not the highest bidder.
As the highest bid was over the Auction Guarantee Sale Price the profit share agreement between the Auction Guarantor & the Seller was triggered.
The total profit share is the difference between the winning bid and the Auction Guarantee Sale Price or in this case $50,000. This is calculated by subtracting the $500,000 Auction Guarantee Sale Price from the $550,000 highest bid.
The Profit Share for the Auction Guarantor is calculated by working out what is lower - $5,000 or 50% of the $50,000 profit.
As 50% of the $50,000 profit is $25,000, the profit share the Auction Guarantor receives is the lower of the two amounts, which is $5,000.
The Seller's Profit share is $45,000 ($50,000 profit - $5,000 Auction Guarantor profit)
So in summary Seller receives a total of $545,000 for their property and the Auction Guarantor receives a profit of $5,000.
If you think about it, the Auction Guarantee System provided the Seller with certainty that they would receive at least $500,000 for their property and in this case, they also enjoyed an extra $45,000 because of the auction environment.
For the Auction Guarantor, the Auction Guarantee System enabled them to make a profit without having to spend any money. Also had the highest bid not reached the Auction Guarantee Sale Price they were also happy to buy the property for the $500,000 Auction Guarantee Sale Price.
To learn how you can get the most out of our patented Auction Guarantee System be sure to watch our other explanation videos.
If you are a seller, a buyer, an agent, a broker or an auctioneer and would like to use the patented Auction Guarantee System please email info@auctionguarantee.com.au.
To get a FREE copy of our Report - "Discover the Secret that Makes Buying & Selling Property at Auction Easier", Click Here.