Auctions are for Distressed or Foreclosed Properties. Is this True?
Unfortunately, real estate auctions, unlike art and antique auctions, have experienced unfounded negative images in the marketplace. Most of the real estate auctions today are not a result of foreclosure or distressed situations, but rather, are the result of a seller choosing to take advantage of a cost-effective, accelerated method of selling a property. This negative bias has been exemplified in regional markets but the trend is towards increasing sales by the auction method especially where farm and ranch lands are concerned. Traditionally, regions such as the Iowa corn belt demonstrate a strong acceptance of auction method with auction sales exceeding 50% of the total land sales of that region.
It has been shown that builders and developers of residential and commercial properties, prefer the auction method rather than laboring for months or years to sell units of a property one by one. The auction method allows the seller to eliminate virtually all long-term carrying costs, passing the savings directly to the purchaser in the form of a true market price. The auction is truly a win-win situation: sellers obtain immediate cash and buyers purchase properties at fair market value, the price determined by transparent competitive bidding.
Remember, your finest wines, collectibles, memorabilia, art, and hard-to-value premier estates, are almost always sold via the auction method. There is no other truly transparent method to determine the actual market value of a property without outside interference.
What Factors Impact the Success of an Auction?
ü The seller must have realistic expectations, including a fair sales price, terms and conditions of the sale, and market timing
ü The desirability of the property. This includes the location, conditions, and the value of the surrounding properties and community in general. Also, a review of the “highest and best use” of the property may dictate that the property be offered in multiple tracts and/or in its entirety.
ü A variety of auction methods are available to choose from. It is very important to select type that suits the property, market, and seller’s needs
ü A well planned, aggressive marketing campaign targeted to prospective buyers is critical to the success of an auction
ü The selection of a brokerage whose primary focus is both traditional and auction centric is imperative to the success of the auction. Ensure that the brokerage is a member of the National Association of Realtors and carries the Realtor© designation. Also, look for membership in the National Auctioneers Association and the CAI© designation. These individuals have participated in multiple years of extensive real estate training and have the demonstrated experience to make your project a success.
ü A professionally prepared Property Information Packet distributed to qualified buyers prior to the auction, contains the required due diligence materials to ensure a smooth process, and is critical to the success of your project. Chisum Realty & Auction thrives in its ability to perform this task with the utmost care and attention to detail.
ü The physical preparation of the property is another critical factor in obtaining fair market value. Mowing, debris removal, staging, repairs & maintenance, painting, etc. all are contributing factors for a successful auction.
Price Determination vs. Sales Method
1. Property listed in portfolio of other properties
2. Price negotiated down
3. Broker typically absorbs marketing fees
4. Post-sale contingencies
5. Possible financing contingencies
6. Sale date unknown
1. Property marketed separately
2. Price negotiated up
3. Up front marketing expenses
4. Sold “As-is, Where-is”
5. Pre-qualified bidders
6. Pre-determined sale date
When using the auction method, there is a defined time to sell the property with a determined sale date. By specifying a sale date, a sense of urgency is created with potential buyers and this becomes a catalyst for the entire sales process. The auction method places multiple qualified buyers together in the same marketplace, at an established time of sale. The seller is in control of time, thus controlling the financial impact of carrying costs.
The marketing strategy for the sale of real estate property at auction differs from the strategy of selling by listing. Using the auction method, the accelerated marketing campaign requires an up-front investment from the seller. This targeted and direct approach is designed to build value and awareness in the property. It should be considered an investment rather than an expense. This marketing campaign contributes greatly to the success of selling the property.
When using the auction method, the property is generally sold “As-Is, Where-Is.” The seller benefits from a contingency-free transaction. The sale of the property is not subject to financing or repairs because the Terms and Conditions of Sale are determined prior to the auction.
Are Auctions Successful?
Absolutely! As auctioneers, we hear “Real Estate Auctions don’t work, I attended one years ago and it didn’t sell.” While it is true not every property brought to auction will sell at auction it isn’t true that the auction method is ineffective. Chances are greater that a property was brought to auction by an auction company that was not experienced in marketing real estate or the property did not meet the reserve price set by the seller. While no marketing method can guarantee a certain outcome, it is important to understand that not all listings sell either.