At an Auction Guarantee auction the auction happens in the same way as a standard auction would happen i.e. bidders need to register, the auctioneer facilitates the auction and hopefully potential buyers place bids.
The BIG difference is that regardless of whether anyone registers to bid or places a bid or the highest bid is under or over the reserve price, the property is SOLD.
Typical Auction Scenarios
1: No One Turns Up or There Are No Registered Bidders - the Property is SOLD.
In no one turns up or there are no registered bidders (besides the Auction Guarantor), the Auction still proceeds. The Auctioneer will place a Vendor Bid at the Auction Guarantee Sale Price (reserve price) and the property will be passed in. The Auction Guarantor purchases the Property for the Auction Guarantee Sale Price (reserve price).
The Seller receives the Auction Guarantee Sale Price for their property.
If you think about it, the Seller and the Auction Guarantor were both happy with this price before the auction.
2: No Bids or the Highest Bid is Under the Auction Guarantee Sale Price (Reserve Price) - the Property is SOLD
In there are no bids or bidding on the property has not reached the Auction Guarantee Sale Price the auctioneer will place a vendor bid at the Auction Guarantee Sale Price and will announce that the property is “on the market” or words to that effect.
If no further bids are made by other registered bidders, the Auctioneer will pass the property in and the Auction Guarantor will purchase the property for the Auction Guarantee Sale Price (reserve price).
The Seller receives the Auction Guarantee Sale Price for their property.
3: The Bidding Goes Over the Auction Guarantee Sales Price (Reserve Price) - the Property is SOLD.
If the bidding goes over the Auction Guarantee Sales Price (reserve price) the property will be sold to the highest bidder (this could be the Auction Guarantor).
The amount the Seller receives for their property is the highest bid less the Auction Guarantors profit share.
As an example, if the winning bid was $650,000 and the Auction Guarantor’s Profit Share was $5,000, the Seller would receive $645,000 for their property (N.B the final figure could be lower as for demonstration purposes, fees etc have not been included in this calculation).
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.
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