Auctions are a New Way of Selling Real Estate |
By Denise Lones
The Lones Group
Auctions are nothing new, but they're more popular than ever before. From Sotheby's in New York to eBay all around the world, the auction is no longer a special event. It's become a way of life. The real estate industry is not immune to the popularity of this particular selling medium.
Real estate auctions are becoming more and more popular on the West Coast, and especially in Eastern Washington. While they've been in use for years, they're no longer exclusively for the savvy investor, the farm owner, or the commercial property owner. Now the average real estate buyer and seller can use auctions to his or her advantage.
A real estate auction starts with a designated piece of land or property. The owner contacts an auction house to handle the details. Interested potential buyers are pre-approved and taken to the site to view the property.
Research is the key word for before the auction. Everything about the property-every last detail-needs to be documented and made available to the potential buyers. Any problems with the property need to be addressed up-front. Buyers need every piece of information available before they bid.
While this is always important, it is particularly important at an auction because once a winning bid is accepted, there's no turning back. The bidder owns the property, like it or not, and there is no escape clause.
The auction company invites a group of pre-approved individuals to a location to bid. Just like traditional auctions, an auctioneer rattles off prices until the property is sold with the final bang of the gavel.
The auction itself is one of the truly brilliant marketing schemes of all time. Where else in the world are people proud of paying the highest price? It's an ego-driven event, fueled by competition. When two or more people are put in the same room and asked to bid on something they both want, frugality goes out the door. People bid to win. It's a tension-filled adrenaline ride.
Several years ago, I attended a charity auction event and I was amazed that a person bid $1,000 for an item whose value was listed in the auction catalogue at $300. So, I figured it was because it was a charity auction.
A couple of years later, I went to a non-charity auction and witnessed the same behavior. The auction environment makes people do things they wouldn't do in every day situations.
This is good news for the seller. Instead of dealing with a series of low ball offers, the seller is offered higher purchase prices than would have been offered otherwise. Purchase prices that can be well over the listed price.
Another advantage of real estate auctions is the ability to sell multiple lots. For example, let's imagine a seller has a large piece of property with 50 subdivisions. Sure, they can list it on the MLS and can sell it one builder or developer who wants to build 50 homes.
Or they can put it up at auction and have multiple builders bidding on the 50 separate parcels. This can often result in a much higher cumulative purchase price than selling them all to one developer.
While there are many opportunities at a real estate auction, there are also some key things you need to be aware of. Many buyers come to an agent and say, "I heard there's a real estate auction. I want to go. Will you come with me?"
Stop. If you do not have a pre-arranged agreement with the auction company, you will lose your commission. It is not mandatory that they pay your commission unless you have registered your buyer in advance. Make sure you know the rules.
Your buyer also needs to understand that once they buy at auction, they can't give it back. Once it's bought, it's sold. It's not like a typical real estate transaction where you have time for inspection and financing.
This is another reason auctions are so attractive to sellers-because they know for sure these transactions aren't going to fall apart. Because all of the homework has been done in advance. And once the bid is accepted, a final closing date is set and the seller knows exactly when they will get their money.
I recently met Chuck Yarbro of Eastern Washington, one of the nicest guys you'd ever want to meet. He is a specialist in selling real estate at auction-a true pro. He gave me the education of my lifetime. I've got to tell you, I thought I knew a lot about real estate auctions. But Chuck taught me a thing or two.
If you've never been to a real estate auction, it's one of the most exciting events in your industry. I highly recommend attending one just to see what all the fuss is about.
But be careful. You can get tied up in the moment. Your ego can make you do things you wouldn't normally do. It's very much like gambling. You go to a casino and promise yourself you're only going to play with $20, but you end up betting $100.
And if your clients are interested in auctions as a way of selling their properties, make sure you know how it all works. Be aware. Be informed. Be an expert. If you know what you're doing, you and your clients can make a lot of money with real estate auctions.
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