Auction Experience: Larry Williams
I started attending residential auctions in 2006. I was so fascinated by the auction process and the lack of ability for anyone to know what a property or home would sell for, that I started going to every auction I could find. At the end of 2007, I had seen over 1700 homes, buildings and vacant property sold. I attended all types of auctions including: “on location,” “caravan” and “ballroom.” I recorded all the values of each property sold and by the end of 2007 I was able to predict with 90% accuracy what a property would sell for with few exceptions.
This turned out to be one of the most valuable real estate experiences I had ever learned. Prior to my real estate career I had been involved with car auctions and commercial auctions. I had both bought and sold various items and products at auctions. This just enhanced my real estate auction experience. After a few months of attending auctions, I wanted to learn more so I started reading various books on auctions. The best book I read was “Church’s, Jails & Goldmines” by Steven Good, a professional worldwide auctioneer. The best reference book was “Sold! The Professional Guide to Real Estate Auctions” by Stephen Martin and Thomas Battle III.
In 2008, I quit going to auctions on a regular basis, but I continued to attend special and unique auctions to see if my formula still worked. I can honestly say that it still does. However, I want to make it very clear that nothing is 100% in the auction business. The uncertainty is what makes auctions so unique and attractive to so many buyers. I have seen homes sell for more than they were listed for and I have seen auctions where nobody showed up at all. If you have never been to an auction, I encourage you to attend, just for the experience alone. I guarantee you will never forget it.
1. Types of Auctions: Three Main Types.
1. Minimum Bid: An advertised price is set as the lowest price this property will sell for.
I. Advantage: everyone knows before the auction that this property is valued at or above the minimum bid.
II. Disadvantage: A lot of buyers will not attend unless the minimum bid is low enough to attract the investor type of auctionees. Seller will make less money with few buyers.
2. Reserve: The seller tells the auction company they will not sell this property for less than a certain price. No one knows this price except the seller and auction company.
I. Advantage: Sellers love this because their comfort level allows them to sell and not lose any money beyond the price they will accept.
II. Disadvantage: Buyers may not attend auction because they are not certain they will get a good deal on the property. Seller will not make as much money with fewer buyers. The public does not like it because they could go through the entire auction process and have the winning bid and later find out it does not meet the reserve price.
3. Absolute: The property will sell regardless of price offered. A good auction company will not start the auction unless they feel comfortable that there are buyers signed up that will bid at least a fair price for the property.
I. Advantage: Seller usually will sell for more money because more buyers attend the auction resulting in a higher bid to beat out another buyer. An absolute brings out serious buyers because they know the house is going to sell and always think that maybe there will not be any other buyers as serious and prepared to buy as they are.
II. Disadvantage: It is possible there will not be any strong buyers and the price may sell for less than the seller had hoped to get.
What you must know if you want to auction your property:
- Selecting an Auction Company: The most important items when selecting an auction company to sell your residence or property is experience and results. I have seen many auctions fail and they were almost always resulting from inexperience and no long history of results. A good auction company will have a following, a number of buyers who will attend their auctions on a regular basis. It only takes two buyers to succeed, however, if they don’t sense the auction fever, a term that is hard to explain unless you have been to an auction, they won’t bid at all. It is very important to know how to start the bidding at an auction properly, if not, there will be few if any bidders. It is an art to see a successful auctioneer work the audience of buyers. Once the buyers start bidding, it is only a few minutes until it is narrowed down to the top 2 or 3 bidders. Again, an experienced auctioneer knows how to get the most money out of the final 2 or 3 bidders. Please do your research before selecting the auction company who will handle your auction. Personally, I use Beth Rose Auction, and I can honestly say they were the best auction company to sell personal on location residences, condos, land and commercial properties.
- What does an Auction Cost Me? Your biggest expense would be losing money on a failed auction. You absolutely must do everything possible to make your auction succeed, with the 2 most important items being selecting the right company and the right type of auction.
- Commission: There is no cost to the seller. The buyer pays the commission which is 5 to 10% additional to the purchase price.
- Advertising: This is the seller’s only out of pocket expense. It is also the biggest reason that sellers choose not to auction their home. Most advertising will cost from $3,000 to $10,000. The auction company will itemize where they spent this money and return all unused deposits. Very Important; an auction will not succeed if good and proper advertising is not used. Larger homes or unique properties will cost more but if you do not advertise you will not succeed. There is nothing worse than spending $3,000 to $10,000 on poor or inadequate advertising and not have anyone show up. I have seen poor advertising and not have anyone show up. I have seen that happen only with inexperienced auction companies.
Some of the most popular uses of advertising money:
- 4 color flyers
- Newspaper advertising & Trade Publications
- Direct Mailing to specific groups. Ex. doctors, lawyers, executives, entertainers, etc
- Internet and all Social Media
- Radio and Cable TV
- MLS if using a Realtor
- Press Releases
- Price: what price do I list my house for to go to auction? This is very critical. If you list too high no one will show up. This is why minimum bids are so difficult. If you go absolute, no price is in advertising and this is why it is so successful. If you must use a price, it is best to start at 50% of the price you hope for. This will attract more buyers and end up with more money.
DO NOT AUCTION YOUR HOUSE if you expect or must get full price. The auction purpose is to sell your home fast and let you cash out now, not 3 -12 months from now. You can reasonably expect to get 60-80% of what it would sell for on the open market. You still must make your home attractive to buyers. The better it looks the more money you will make.
Three topics you must understand:
- Realtors: Should I use a realtor? If you have a realtor who knows about auctions, yes, definitely. They can help you market the home which will result in more money. Most realtors do not have auction experience and will probably steer you away from using an auction. An auction is not for everyone! However, if you need to cash out and can afford to give up 10 -20% of your value, it is a great tool and can be very successful if you select the right auction company.
- Timing: It takes 30 days to advertise an auction. After 30 days, your house can go to auction and the buyer has 30 days to arrange financing. You can cash out normally in 60 to 75 days from time you sign a contract. Cash offers can be 30-45 days.
- Deposits: When bidding on a property, most auctions will require 5 -10% of expected value of property upfront in cashiers check. This money will be refunded to you at the end of the auction if you are not the successful bidder. This deposit eliminates most buyers who are not sincere about buying from even bidding on your property. The amount of deposit will clearly be spelled out in auction literature. Anyone can bid at an auction as along as they have this deposit.
FAQ – Most frequently asked questions by Beth Rose, Auctioneer, Rose Auction Group, LLC
Q. When will the auction be held?
A. An advantage with the auction method is that the seller has right to choose the date and time of their own auction, instead of waiting around for an offer. One of the reasons auctions are so effective is that your property is exposed to a wide variety of potential buyers on set sale day. Don’t lose precious time sitting around waiting for your property to sell itself.
Q. Where will the auction be held?
A. Most auctions are held on site. By being on site, the bidders are constantly reminded of the positive features associated with that particular property, which in turn might encourage a higher bid.
Q. If I put my property up for auction, do I have the right to refuse the bid?
A. On a “minimum bid” auction, you have the right to refuse offers below the minimum bid level we set in advance. On a “reserve” auction you have the right to refuse any bid. When you elect to use the “absolute” method of auction, the auctioneer has the option of canceling the sale if it is deemed to be a situation that is not favorable to the seller.
Q. Who pays the auctioneer’s fee?
A. The auctioneer is paid via the “buyers premium” that is added to the buyer’s final bid. If you elect to register your property with our auction program, you will be required to sign the auction marketing listing agreement, which provides that on a pre or post-auction sale, an offer would include this fee to the seller.
Q. Will we still have to consider a contingent contract?
A. Everything that we sell at auction is sold “As is” “Non Contingent,” with a thirty day projected settlement date and the buyer paying all allowable closing costs associated with the sale.
Q. Does “As Is” mean that I don’t need to disclose any known defects.
A. Although we are selling “As Is,” we must abide by applicable state and federal laws. The seller will still complete all required disclosures required in order to prepare for the sale of the property. The auctioneer will offer full disclosure to all interested parties in accordance with these laws.
Q. Why should I sell my property using the auction method?
A. To accelerate the sale of your property by generating additional consumer interest and activity. Non-contingent contracts and thirty day settlements are required of all buyers of auctioned properties. This means a quick transaction for you.
Q. Can I attend an auction before agreeing to sell my home through the auction method?
A. Certainly, we encourage your attendance and would be pleased to have you experience a live auction process firsthand. Just talk with the auctioneer about our upcoming schedule of auctions. Remember each and every auction is different, so it is impossible to assume that your auction will be exactly like the one that you attended.
Q. I am not in financial trouble, and I’m concerned about what people might think if I should have an auction. Can you give any insight on this?
A. You are not alone in your concerns. Many people are afraid of the previous, out dated perception of auctions that some people have. There are great differences in the marketing and the public image of a voluntary, “by choice” auction such as ours versus a distress auction. Our auctions are positive, enthusiastic events designed to generate competitive bidding to secure the highest possible market price for your property.
Q. My sales associate has had no previous experience with auctions. Will this impact my results?
A. No, the auctioneers who conduct our auctions are auction specialists and have their own team of individuals who are experienced in handling all aspects of the auction and it’s marketing efforts.
Q. The property is priced below the market right now. What is this going to mean if I register it for auction?
A. Often times we find that the price is not the issue in why a property has not sold. The primary cause for it not selling is often that there has not been adequate traffic and therefore, sufficient interest in the property. In other words, it has become “stale” on the market. The auction process is the best way to revive interest in the property and instill excitement that will result in a positive sale.
Q. What types of property do you sell?
A. We auction all types of real estate from condominium, co-ops, townhouses, single family dwelling, land, vacation properties, commercial and investment properties to high-end premier properties and country estates. We have been successful in all of these categories.
Q. How often do you hold auctions?
A. We conduct major auctions throughout the year. You will need to check with the auction department about the registration deadlines to enter a property into auction.
I hope this information has helped you decide if your property is a candidate for auction. I would be glad to sit down with you and go over your specific situation at no charge if you desire. I can also suggest alternative methods of selling your home at that time.
Larry Williams, Auction Specialist