- Comparables are usually the method by which a property is priced in the conventional sale of property. Yet comparables often skew the picture and create an unrealistic value of the property in question due to their scarcity (lack of similar properties) or the time frame in which the comparables sold (a comparable that sold 18 months ago and took a year to do so does not truly meet the criteria of “a reasonable time for exposure in an open market” as markets can change rapidly).
- All potential buyers know the terms and conditions for the particular auction and they do not change from person to person.
- Sellers have committed themselves to achieving a contract on the date of the auction, by virtue of the fact that they, the seller, have determined the date of the sale as well as the reserve price (if any) of the property.
- Buyers can know relatively quickly whether or not a particular property can be purchased. Little time is wasted.
- The National Association of Realtors defines fair market value as the price that a ready, willing, and able buyer will pay assuming both parties are typically motivated, well informed, under no undue pressures, and possess all relevant facts. In addition, the federal government includes the following in their definition of fair market value:
a) A reasonable time is allowed for exposure in the open market;
b) Payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and
c) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
- How often does a conventional sale of real estate meet this definition? With an auction sale of real estate, the fair market value of real estate is immediately determined on the date of the auction.
- Everyone is able to schedule their moves at the same time, without the normal problems associated with trying to do so in a conventional sale of property.
- Time is saved as multiple properties may be negotiated for on the same day by the buyer instead of negotiating on multiple properties on multiple days with each negotiation taking an extended amount of time.
- This is just one more example of the level playing field available to all buyers involved in the auction method of purchasing real estate.