The Viability of Auctions

- Another Way of Marketing Your Property -

Real Estate Auctions used to conjure up images of distressed property and foreclosures. Not anymore. High-end and desirable properties are standard fare for auctioneers.

The auction is an effective way to move nearly every property as long as the sellers are willing to pay the upfront fees (approximately $2K) for marketing needed to create a campaign that will generate interest among potential buyers. (There are no commissions. They Buyer pays a Buyer Premium (in effect, the commissions.)

Auctions can work for every property, and they often bring in higher sales prices than you’d get by selling a home the traditional way.

The National Auctioneers Association (NAA) reports that $14.2 billion worth of residential real estate was sold at auction last year, an increase of 8.4 percent from the prior year. That increase is the largest tracked by the association. Last year 13.7 billion – commercial and industrial real estate was sold and $23.3 billion in land and agricultural real estate was sold at auction.

Now that the market is swinging back to one favoring buyers, this is an alternative that needs to be explored. Currently there is an increase in the number of competitive listings. The auction process allows the auctioneer to focus on a specific property and create urgency in the market that doesn’t exist when you have a buyers’ market. They literally pluck a property out from the large numbers that are available and create a focus on it. In addition, NAR’s auctions managing director states that younger buyers are used to online auctions such as eBay and Yahoo Auctions. It’s a first resort for consumers who are looking for options.

Let’s talk about the basics of auctions:

There are three types:

Absolute, minimum bid and reserve. It is important to match sellers with the auction formats with which they feel most comfortable.

At an absolute auction, the property goes to the highest bidder, no matter what the highest bid may be. Some like this format because it shows that the seller is serious about moving the property and, therefore, attracts motivated buyers. But it can be a risk. If the highest bid is lower that what a seller expects, he or she is still obligated to accept the offer.

Minimum bid auctions offer more flexibility. The seller agrees to sell the properties only if the highest bid reaches a set price. If that happens, the property is sold to that highest bidder. This protects the seller from giving up a property at an unsatisfactory price. Some motivated buyers, though, may not be as eager to participate in an auction where the property might not sell.

During a Reserve Auction, the seller sets a reserve price before the auction takes place, at which he or she will agree to sell the property. If no bids come in at or above that price, the property does not have to be sold.

Auction pros say that almost any property is a good candidate for auction. However, certain situations lend themselves more readily to the process. Many sellers embrace the auction method when they need to sell a property quickly. The traditional method of selling real estate, especially in a slowed-down market, is time consuming. But selling a property at auction, especially at an absolute auction, can be done within an hour or two.

The seller takes control of all the terms of the transaction. It allows everyone equal opportunity to compete for a property on the same terms. The auction process provides certainty in a quick and efficient manner.

(Interesting fact – 1900 residential lots in North Port owned by the city wherein they struggled to sell them, fetched more than $60 million in an online auction.)

While auctions may be right for most properties, they may not be for every seller. Sellers must be committed to the auction process, they must understand how it works and they must be willing to spend money to promote the actual event.

The property must be marketed and the auction itself needs to be advertised. Sellers willing to pay for marketing are often rewarded with a top-dollar sale. “The Power of Marketing”. Most auctioneers spend 45 – 60 days marketing auction properties.

While there are fewer buyers today, they are still able to draw (the attention of) those buyers who are interested or have a need for those properties. Bottom line, the tremendous amount of marketing they put into a property in a short period of time gets Sellers the sales they want.

Pricing: Of course, if a seller has unreasonable expectations or requires a minimum bid that is too high, holding an auction will not guarantee a sale or a satisfied seller. Reasonable Expectation – needs to prevail. If sellers have a fair price in mind, they do very well at an auction. Auctions always bring fair market value because the buyers are right there competing with each other.

Auction Example: On March 31, 2006, an auctioneer auctioned a property that was listed for $345,000. The sellers chose an auction because 10 other properties were for sale on the same street and the listing agent wasn’t getting any calls on the property. The auction division’s marketing went into action ……….. the sales associate received 13 buyer calls and did 16 showings. The property sold for 87% of its appraisal price…… Key Words – “The Property Sold” !!

Think of auction marketing as one more tool. A motivated seller, intense marketing that creates urgency, usually sells a property faster and at a higher price than you might have gotten had it sat on the market indefinitely.

Source: Florida Realtor July/August 2006