In this time of unprecedented economic upheaval, many dealers are facing a severe cash shortage. Some are considering selling surplus property as a source of operating capital.
However, in declining real estate markets across the country, obtaining a quick sale without deeply discounting the listing price can be a tall order.
Fortunately, most dealers are familiar with a sales technique that also works well for real estate — the live auction. In the same way an auto auction will quickly move inventory at market prices, a live real estate auction will reliably produce a sale for true market value in a matter of weeks.
A professionally conducted real estate auction is different from a fire-sale foreclosure auction and is carefully designed to protect the seller while obtaining true market value.
An auction has four steps.
- Assemble Due Diligence Materials
The auction company gathers a wide variety of information about the property and posts it on their web site to assist potential bidders with their due diligence. Since properties are usually sold as is and without contingencies, providing comprehensive information and scheduling multiple showings in advance of the auction is critical.
- Conduct the Marketing Campaign
The most important element of a successful auction is an intensive marketing campaign which generates global exposure of the property and creates interest among as many potential bidders as possible. A wide variety of techniques and media types are used during a typical month-long campaign.
- Hold the Auction
Real estate auctions are conducted at a much slower pace than car auctions but the process is very similar. Most auctions use an unpublished reserve price to protect the seller and require the buyer to pay all commissions. A typical auction takes about half an hour. The winning bidder makes a large non-refundable deposit and signs a purchase agreement.
- Proceed to Closing
The auction terms typically require that the winning bidder close within 30 days through the traditional escrow process.
Compared with the traditional method of listing property with a broker, a live real estate auction has a number of compelling advantages.
Speed. Selling in a matter of weeks lets sellers dramatically reduce carrying costs. In addition, since most markets in this country are currently declining, selling promptly can avoid a considerable reduction in value.
Predictability. As opposed to the open-ended traditional listing process, an auction happens on a scheduled date, as does closing. Sellers know exactly when the proceeds will be available.
Seller Orientation. Auction terms and conditions are designed to protect the seller. Contingencies are eliminated, as are endless negotiations about price and terms. The buyer pays all commissions and the seller sets the reserve price.
Global Exposure. While many brokers are content with just a sign and a multiple listing service posting, for an auction company, that's just the beginning. Auction marketing uses a tremendous variety of additional techniques to promote each property as widely and effectively as possible. The result is interest levels that traditional brokers can only dream of: 100,000 web site hits per auction are not unusual.
Pricing Accuracy. Establishing an asking price for a traditional listing is risky. If the price is too high, the property will sit on the market for months or years until repeated price reductions finally yield a sale. A low price can encourage a more rapid sale and reduced carrying costs, but money is left on the table. Selling by auction lets the market establish the proper price through competitive bidding.
For a forward-thinking dealer who wants or needs to quickly convert surplus property to cash without leaving money on the table, a live auction can be an excellent choice.
Author Paul Thomas is a principal in a real estate auction company. He is happy to answer questions about auctions and can be reached at [email protected] or (888)222-1882.