A round robin auction is the process of selling a property where a seller moves the property quickly to sale. That seller markets and holds his or her open house, then sells the property that very weekend (normally a two day period of a Saturday and a Sunday following the advertising that occurs earlier that same week) the auction is held to the highest bidder. This creative selling method is an excellent way for an investor seller to avoid the conventional cost of using a real estate agent at the customary 6% of the purchase price. Of course, many real estate agents, nowadays, are employing this technique themselves as a seller’s agent to move houses in a cold market.
It is a smart, imaginative way to sell real estate quickly because the process creates a sense of urgency. Round robins do generate a lot of interest and if you want the property, you need to be prepared to make your move or risk losing to another. It allows the seller to get his or her highest possible dollars in the shortest time frame. The seller will set the opening minimum bid low enough to draw the bidders in and it is to be expected that the folks at the auction will get involved and excited raising the bidding price until almost retail, fair market value levels.
This clearly is not the conventional way of selling real estate, where the prices start high and are worked down. A well run round robin auction statistically will generate 93-95% of the fair market value of the comparable values in the neighborhood and with no real estate agent involved when an investor runs the round robin, with the commission of 6% avoided at closing, the retail values are often attained when all is said and done. The seller, of course, reserves the right to cancel the round robin if there is not enough interest to hold it.
I have taught this technique and have used the tactic over the years with great success, and I always emphasize the importance of understanding the perspective of the bidder.
This bidding process is a buyer friendly approach that eliminates all the usual risks associated with buying at a traditional auction. That open house weekend is the time to visually inspect the property and to sign up to participate in the bidding and place an initial bid. Normally held over the two day weekend, often from a 1pm to 5pm time period to inspect the property, the final bidding is held by telephone commencing 8pm that Sunday evening. Each bidder will receive a call informing them of the current bid and offering them the opportunity to increase their bid in order to make it to the next round. Rounds continue until only the highest bidder remains.
The rules are very straightforward. A bidder needs to visit and inspect the property during the open house hours. They must complete the bid sheet so they may be contacted that Sunday evening and must be available for the seller to remain in regular contact with them. The winning bidder must be available to execute the contract. If they cannot and alternative satisfactory arrangements cannot be made that evening, the seller reserves the right to call on the next highest bidder and close with him or her. The seller does reserve the right to decline any and all offers unacceptable for whatever reason.
The bidder must be prepared to tender an earnest deposit, typically as little as 1% of the winning bid. That good faith deposit will be applied to the purchase price. The bidder will have the protection of customary contingencies such as getting financed and a satisfactory home inspection.
The bidder will receive a warranty deed, with a free and clear title, at closing, with any mortgages, liens, or other assessments paid from the proceeds of the sale.
The round robin should be a win-win for both the seller and the buyer.