Re: Is auctioning a property a good way to sell? - Posted by ray@lcorn
Posted by ray@lcorn on November 06, 2002 at 06:51:27:
Nikki,
I love auctions as a way to buy and sell. If selling, then there are certain things you need to be aware of.
First and foremost is the marketing plan. The best auction is a well-attended auction. It’s true that it only takes two people that want the property to drive the price up, but it’s hard to know which two in a crowd of a hundred they are. For $500 I would guess that the auction company is going to run a newspaper ad and perhaps mail out a flyer? That may be enough if they have an old and seasoned mailing list, but it could leave a lot to be desired. The major asset of an auction company is its mailing list.
You should ask for a detailed marketing plan, and I would look for a combination of newspaper, direct mail and online exposure. Online promo has become the most efficient way to contact buyers, and I wouldn’t use a company that did not at least have a website that they could use to promote the sale. Several houses in one sale is enough to create a buzz, and the advertising should do that. Ask what their normal sale attendance is… attend one or two of their sales. Treat hiring the auctioneer like you would any subcontractor you’re hiring to get a job done. Check them out. Ask for the names and numbers of past clients that have used the company, then call and ask how the sale and closing went.
Next are the terms. Most of the auction companies I have dealt with will front the marketing expenses if at least one of the properties to be sold is offered absolute. That means it goes to the highest bidder with no reserve. An absolute auction will always attract the biggest crowd. Selling absolute is usually a little unnerving to the owner because of the element of chance that it won’t sell for enough to cover debt (if any), but there are ways to mitigate that possibility.
As to commissions, most of the auctions here have moved toward the use of a “buyer’s premium” that effectively splits the commission between buyer and seller. The auctioneer will explain before the sale that whatever the high bid price is, a “Buyer’s Premium” of (usually) 5% will be added for the final sales price. Everyone acknowledges it, but few remember when the bidding starts. It’s a good way to minimize sale expenses.
I would not go along with the auctioneer keeping the good faith deposit if the sale doesn’t close. The deposit is usually equal to the commission (in my area 10% is the normal deposit and also the normal commission), and the commission is not earned until the sale closes. Remember it is negotiable, and I would find another auction company before agreeing to that. If the auction company has fronted the sale expenses then I would be willing to let them recover those expenses, but the balance would come to me.
You’ll want to think about the sale location. With multiple properties it is often better to gather all bidders at a central location, whether on one of the properties or not, and conduct the sale there rather than taking the chance of losing bidders traveling from one location to the next. My favorite auction company here routinely rents a meeting room in a local hotel and sets up the display for the property being sold with large display boards of the plat, pictures, etc, and also a video running of the property. Very effective, and it beats standing in the rain on a cold day trying to hear the bid over traffic noise.
With multiple properties you’ll also want to think about grouping. That’s when the bidders can combine two or more properties together with a minimum raise. That can add a lot of value if the auctioneer understands how to use it. Auctions are poker games played in public, and the auctioneer is the dealer that controls the flow of the game. It’s important that he is good at it.
Bottom line, with the right auction company you can get your properties sold at a fair price and close quickly. In this business, that’s two out of the three things you need to make money.
ray