How does auction value differ from market value?
The differences between auction value and market value stems from the auction process itself. By this, I refer to several characteristics which are more dominant in the auction process than in the ”list and sale” technique. They are:
1. The necessity to make a decision as to buy or sell at that moment. There is not time in which to deliberate and think about it. There is a sense of urgency.
2. The auction process creates an atmosphere of competition among the bidders which could result in at least one or more bidders to offer more for the property than they would have under different circumstances.
3. Buyers are not competing against sellers, but instead are competing against other buyers. Therefore, the activities are not those of negotiation between a high and low price but instead it is a contest of how high one bidder is willing to go above another.
Logically, it would appear that if all of the bidders present at an auction were all well informed as to the market price of a property, then the market price would tend to represent the ceiling of the selling price.
However, an auction many times acts on the emotional side of a buyer’s personality. And when a person starts to add emotion into value judgments, then those judgments may lose some objectivity and, in the buyer’s eyes, more value may be given to the property than is shown by market comparisons.
On the other hand, there is a possibility that the auction price may fall short of the market value. For example, the time allotted to expose the property to the public may be in reality not long enough to attract that buyer who is willing to pay the highest price for the property. Then, the seller who is emotionally prepared to sell the property may accept a lower price rather than wait any longer. Also, if all of the buyers are able to remain objective and the auctioneer has failed to inject emotionalism into the bidding process, then the auction price may also fall short of the market value.
For more information about real estate auctions, visit my website at www.canSellnow.com. |