Kansas Land Auctions
Bid for More Business - Online auctions are opening up vast opportunities for buyers and their agents.
NOVEMBER 2013 | BY GRAHAM WOOD
Real estate auctions aren’t just for ugly foreclosures that banks are desperate to get off their books. Real estate practitioners are helping first-time buyers and trade-up home sellers find success as they belly up to the bidding table in low-inventory markets.
Private-owner auction sales edged out lender REOs as the most popular type of auction in 2012, according to PropertyAuction.com, though the company declined to provide specific figures. The allure of potentially selling a home more quickly than a traditional listing allows—and possibly at a higher price—makes auctions an attractive option for sellers. And buyers are finding more opportunities to bid on great deals.
Other real estate auction sites are responding to the demand for private-owner sales as well. Auction.com, for example, launched its division of nondistressed home sales a year ago, and since then it has sold 140 homes totaling $72 million in sales, says Senior Vice President Jennifer Leuer. “A lot of equity home owners are in Auction.com’s inventory,” Leuer says. “The number of people who are organically calling us has increased exponentially.”
One of Auction.com’s recent success stories was the auction of a 93-year-old man’s seven-bedroom, nine-bathroom beachfront estate in Corona del Mar, Calif. The home went for $5.3 million—$1.8 million higher than the opening bid of $3.5 million.
Because auctions are increasingly going online, real estate professionals can potentially find significant business opportunities there, says Troy Watts, owner of Little Bull Auction & Sales Co. with several offices in Kansas, the heartland and home of all kinds of Auctions. During the "Great Recession", we helped banks manage auctions of their distressed properties. “People have become more comfortable with buying and selling at auction,” Watts says. “The buyers of tomorrow are going to be just as comfortable making an offer on a piece of land or house they’ve never seen or maybe just driven by.”
The immediacy of auctions is a draw for many sellers and buyers, says Melissa Davis, an auctioneer in Indianapolis. Because buyers must be pre-approved and homes sell the day of the auction, the transaction process is considerably streamlined. “It only takes three to four weeks to properly market a home and 30 days to close—or sooner if a buyer is paying cash,” Davis says. “The process is much faster than taking a chance by listing the property and waiting for a buyer.” Because of the shorter timelines, agents can sell properties more frequently and stand to make more money in a shorter period of time, she adds. Neither buyers nor their agents are required to attend a live auction to participate.
While the advantages are compelling, Watts notes a possible drawback: Many auctioneers—who operate independently from agents and require their own licenses—have authority over how properties up for auction are listed and marketed. That means the agent has to “give up some control over the listing,” he says. For example, an auction house may decide that a property can be listed only on its own Web site, which limits the number of potential -buyers.
Still, practitioners play similar roles with auctions as they do with traditional listings, Leuer says. When representing buyers (sellers are usually represented by an agent from the auction house), they provide expert local knowledge and earn a commission. Here’s how such buyer’s agents typically get paid: The seller will offer to pay the buyer’s agent a commission—usually up to 3 percent—or the auction house will pay the buyer’s agent a cut of the so-called “buyer’s premium.” A buyer’s premium is a percentage of the sale price—from 5 to 10 percent—that is added to the winning bid. It’s paid by the buyer; the auction house determines the buyer’s agent’s share and uses the fee to cover marketing costs. Some smaller auction companies or individual auctioneers charge the seller a separate marketing fee. “It’s not a distressed market anymore,” says Peter Muoio, head of Auction.com’s research division. “As the overall market improves, so will the sentiment that auctions are a good buy.”
Grab the Auction Opportunity - No Longer A Last Resort
by THOMAS SATURLEY, CAI, AARE
Auction Properties, Ltd.
Across the country, real estate professionals are increasingly turning to the auction as a winning marketing tool. If you properly qualify your situation as a potential auction scenario (we’ll tell you how), you have an excellent chance at turning over a property quickly.
Auctions offer clients and customers new options, enhance your image as a full-service professional, expose the property to a wide market of potential buyers, and turn profits for your firm. Plenty of revenue-producing roles are available in the auction process. You don’t have to become an auctioneer to benefit. You can earn a fee as a referring agent/broker, a cooperating agent or a listing agent. However you participate, you’ll add one more marketing weapon to your reserves of professional techniques.
The Two-Thirds Rule
Not all properties should be sold at auction, but certain properties and situations will benefit greatly. A dependable way to determine whether a property lends itself to auction is this: If two of the three main components of a transaction (market, the seller and the property) lean favorably toward auction, then it should be offered to a seller as a sales option.
Here’s a checklist to figure out if the Two-Thirds Rule applies to the property you are handling:
Do these characteristics describe the market?
· a changing market
· a dull market -- too much product but with buyer interest
· not enough of the particular property type (unique, lake front, etc.)
· an emerging market -- for example, a new development whose sales could take off once some properties are auctioned
· a seller’s market with high demand and high competition
Do these characteristics describe the seller?
· needs immediate cash
· going through a partnership or marriage break-up
· is moving out of state
· wants to liquidate an estate
· is retiring
· is an auction-minded seller
· has a listing that is about to expire
· has already purchased another house
· knows auction will bring a fair market price
· has financial problems
· has high carrying costs on the property
Do these characteristics describe the property?
· carries a lot of equity (25% or more)
· unique -- enough market interest to encourage competition
· burdening the owner with high carrying costs
· vacant -- vacant properties may encourage vandalism
· difficult to appraise -- unique properties are difficult to appraise
What Properties Are Suited for Auction?
Q. What properties are suitable for Auction?
A. Most properties are salable by auction. All types of real estate, including residential property (e.g., town homes, condominiums, cooperative apartments and single-family homes), commercial and industrial property, vacant land and even boat slips are sold at auction. Not all property, however, is suited for auction. If a property will only appeal to a narrow market, auction may not be the most effective marketing method.
An Auction Self-Test: The Two-Thirds Rule
One method to determine if auction is the best marketing strategy is the Two-Thirds Rule. This involves analysis of the market, property and seller situation. Generally, if two of the three parts (market, seller, property) lean towards auction, then auction should be offered to the seller as a sales option.
Market (Buyers) -- A good auction situation is one where the market is:
A changing market
A dull market; too much product but buyer interest is expressed
Not enough of the property type (unique, lake front, etc.)
An emerging market -- new developments could kick off a sales program, once some of the properties were auctioned
A seller's market where there is known high demand and a lot of competition can take place
Seller -- A good auction situation is one where the seller:
Needs immediate cash
Has a partnership or marriage break-up
Is moving out of the state
Wants to liquidate an estate
Is an auction-minded seller
Has a listing that is about to expire
Has already purchased another house
Knows the auction will bring a fair market price
Has financial problems
Has high carrying costs on the property
Property -- A good auction property is one that:
Has a lot of equity (25 percent or more)
Is unique -- there is enough buyer/market interest to encourage competition (unique properties are difficult to appraise)
Has a lot of high carrying costs for the owner
Is vacant -- vacant properties may encourage vandalism
Is difficult to appraise
What Factors Impact the Success of a Real Estate Auction?
Auctions Are Often Thought of as "Fire Sales" For Properties in Distress. Is this True?
Until recently, real estate auctions, unlike art and antique auctions, have experienced unfounded negative images in the marketplace. The majority of auctions today don't result from foreclosure of distress situations, but rather are the result of a seller choosing a cost-effective, accelerate method to sell a property. Builders or financial institutions, for example, prefer auction rather than laboring for months or years to sell units of a development one by one. Auction allows the seller to eliminate virtually all long-term carrying costs, passing the savings directly to the purchaser in the form of a reduced price. Auction is truly a win-win situation: sellers obtain immediate cash and buyers purchase properties at fair market value, the price determined by open, competitive bidding.
What Factors Impact the Success of an Auction?
1. The seller must have realistic expectations, including a fair sales price, terms and timing.
2. The desirability of the property. This includes location, conditions, plus the value of surrounding properties.
3. Since a variety of auction methods are available, carefully choose the auction type that best suits the property and the seller's needs.
4. A well planned, aggressive marketing/advertising campaign targeted to prospective purchasers is critical to an auction's success.
5. Using a recognized real estate auction company or a REALTOR® auctioneer to ensure the auction is conducted in a professional manner and followed-up through closing.
6. Making sure that due diligence information is provided to prospective buyers AHEAD OF TIME.
7. Preparing the property for sale so it is presented to prospects in its best condition. (i.e.., title insurance, clean-up, financing, etc...)
Types of Auctions
Q. What are the different types of Real Estate Auctions available to me?
A. Essentially there are three types of auctions:
1. Absolute Auction (or auction without reserve)
1. The property is sold to the highest bidder, regardless of the price.
2. Since a sale is guaranteed, buyer excitement and participation are heightened.
3. Generates maximum response from the market place.
4. Many sellers, including financial institutions and government agencies have begun to use this method more frequently.
2. Minimum Bid Auction
1. The auctioneer will accept bids at or above a published minimum price. This minimum price is always stated in the brochure and advertisements and is announced at the auction.
2. Reduced risk for seller as the sales price must be above a minimum acceptable level.
3. Buyers know they will be able to buy at or above the minimum.
4. The seller may, however, limit interest in the auction to only those buyers willing to pay the minimum bid price, and therefore it must be low enough to act as an inducement rather than a hindrance.
3. Reserve Auction (an auction subject to Confirmation)
In this scenario, the high bid is reduced, in effect to an offer not a sale. A minimum bid is not published, and the seller reserves the right to accept or reject the highest bid within a specified time -- anywhere from immediately following the auction up to 72 hours after the auction concludes. Sellers predetermine the price at which the property will be sold and are not obligated to confirm a sale other than at a price that is entirely acceptable to them. The main disadvantage of a Reserve Auction is that prospective buyers may not invest the time and expense of due diligence when there is no certainty they will be able to buy the property even if they are the highest bidder.