The primary focus of Wardlow Auctions Inc.’s is the sale of real estate
and personal property by auction. In the past ten years we have sold
over 150 real estate properties at auction, totaling over $19 million.
By focusing on the auction method, we compliment the marketing efforts
of other Realtors rather than compete with them in the traditional
listing process. While most Realtors are well versed in their business
of listing and selling real estate the traditional way, they are not
familiar with the auction method of selling real estate. By working in
cooperation with Realtors, we enable them to offer another marketing
tool which they can offer to their clients to assist in the sale of
their property.
In presenting training courses on the auction method to other Realtors,
we have stressed the importance of identifying the sellers’ objectives
and being able to offer a marketing method that will best meet those
objectives. For some sellers, the primary objective could be price, for
others it could be expediency of sale, simplicity, or a combination of
effectiveness and efficiency.
Whose Client Is It?
When working in cooperation with Realtors, it should be remembered that
the client is your client and that we are assisting you by
providing our experience and expertise in the auction method of selling
real estate.
Perception vs. Reality
From our training sessions and meeting with prospective clients, we have
found that many people believe auctions are used primarily as a sale
method of last resort and property sold at auction brings a fraction of
its true value. Conversely, many of our clients have chosen the
auction method as their method of first resort and realized prices that
met or exceed their expectations. Much of the success of an auction
depends on the characteristics of the property, its appeal to the buying
public, how the auction is structured, and how the property is marketed.
Recognizing Potential
Auction Situations
It is usually assumed that a seller’s major objective is top price.
While everyone wants to maximize sale prices, we have found many sellers
with other objectives as a higher priority. Basically, an auction
situation is good 1) when you have a “hot” property with unknown and
unlimited price potential and 2) when sellers want more control over
their selling situation. Following are examples of good auction
candidates:
-
Estate
Settlement – Where the owner has deceased and it is necessary to
sell the real estate and perhaps the personal property.
(We have done many of these and they tend to work very well with
respect to success in meeting the clients objectives.)
-
Downsizing
Situations
– Where the occupant is moving to a smaller home or an assisted living facility.
-
Unique Property
– Where location or unusual property characteristics make it difficult to ascertain the a fair market value of
the property.
-
Highly Sought After
Property or Location
– Where buyer interest will be high, offering the property in a
competitive bidding environment may very well generate a sale price
exceeding expectations.
-
Competitive Market
– Where there are several properties already for sale in the
neighborhood and the auction marketing method can elevate the subject
property over the competing properties.
-
Tracts of Land
– Where a tract of land can be divided and offered in smaller tracts
to attract multiple buyers and maximum price.
-
Need to Relieve
Cash Flow
– Where for
any number of reasons (i.e. purchase of another house, reduced income,
etc.) the seller has accumulated more debt than desired and wants to
get cash flow back in balance.
Selling Real Estate at Auction
Simply put, the auction method is an alternative method for marketing
and selling property. The auction method is certainly not a competitor
to the conventional listing method. (If you don’t believe me, just look
at the real estate section of the Courier Journal and see how much real
property is offered for sale by the listing method and how much is being
offered by auction). The auction method gives both, realtors and
sellers, another option to consider when trying to select the marketing
and sales method that is best suited to meeting the seller’s
objectives.
Selling real estate at auction has always been a common method of
selling property in rural areas. In recent years however, the auction
method in selling real estate has become increasingly popular in
metropolitan areas. We attribute this to 4 primary factors: 1) as more
real estate is being sold at auction, the public is becoming more
comfortable with the auction method and accepting of it as a viable
option of selling and buying real estate, 2) there is a greater
awareness among seller’s today of the time value of money, 3) we have
become an “instant gratification” society which expects desired results
in a much shorter time frame, and 4) the auction method offers some
advantages that many sellers find appealing.
Selling Personal Property
at Auction
In addition to real estate, we also sell personal property. Many of our
personal property auctions are for clients who are settling estates,
downsizing, relocating, or liquidating their businesses. We have found
a high level of success in estate or downsizing auctions, including both
real estate and personal property. These auctions tend to be most
effective for the seller from both a marketing and a cost standpoint.
Types of Auctions
There are two types of auctions – Absolute and Reserve.
An Absolute Auction is one in which the property is sold to the
highest bidder regardless of price. The advantage of an Absolute
auction is that bidders know the property is going to sell without
reservation of price. Thus it tends to generate more interest among
potential buyers. In an Absolute auction the Seller cannot bid on the
property nor can anyone bid on behalf of the Seller. If an auction is
not advertised as Absolute, you can presume that it is a Reserve auction
A Reserve Auction is one in which the Seller can put a minimum,
or reserve price, on the property. The advantage of the Reserve auction
is that if the property doesn’t bring what the Seller needs, it does not
have to be sold. The disadvantage of a Reserve auction is that it is
usually not as effective in generating interest and attendance among
potential buyers. In a Reserve auction the Seller may: 1) set the
minimum amount, 2) have the sale price subject to confirmation, 3)
accept or reject the final bid, or 4) designate someone to bid on the
Seller’s behalf, with proper disclosure.
What is a Buyer’s Premium?
A buyer’s premium is a percentage added to the bid to determine the
final selling price of the property. For example, if there is a 10%
buyer’s premium and the final bid is $100,000, the final selling price
is $110,000. The buyer’s premium is paid to the seller and is in turn
used to assist the seller in paying the costs of the auction. These
costs usually include, but are not limited to, advertising, commissions,
and other costs that may be incurred in bringing the property to
auction.
Most of our real estate auctions include a buyer’s premium.
Open Houses and Inspections
Real Estate:
For nearly all real estate auctions there are one or two prescheduled
“open houses” several days prior to the auction. If a potential buyer
is not able to attend the open house we will try to arrange a separate
time for a viewing of the property.
In nearly all real estate auctions, the property is sold “as is” with no
condition or contingency. That includes inspections such as home,
termites, radon, lead-based paint, etc. We want potential buyers to be
as knowledgeable about the property as they care to be. Thus, potential
buyers are welcome to get any kind of inspection they want but it should
be done prior to the auction. The inspection results are for the
buyer’s information and are not a negotiating item with the Seller.
Terms and Conditions of
the Auction
This is a very important part of the auction of which all potential
buyers should be knowledgeable. The terms and conditions of sale will
vary among real estate auctions and personal property auctions. Terms
and conditions will also vary between Auctioneers. Potential buyers
should especially be aware of how much down payment is required, what
forms can the down payment be made, and what is the date for closing and
possession.
Advantages of
the Auction Method for Realtors
-
Provides the
Realtor another marketing tool to meet client’s objectives.
-
A
pre-established sale and closing date versus the uncertainty of
knowing if and when the property will sell.
-
The “no conditions,
no contingencies” feature and a pre-written contract results in fewer
issues, big or small, that can potentially result in the voidance of a
signed purchase contract.
-
Fewer contract
defaults.
In an auction the buyer makes a large down payment (ie. 5%
to 10%). If they do not close, they forfeit their down payment. This
results in fewer contract defaults. In the past 10 years we have had
only four buyers who did not close on their purchase.
-
Advertising
expenses are paid from the buyer’s premium.
In
conjunction with advertising the property, the Realtor gets
the self marketing exposure without having to pay advertising costs
out of pocket.
-
Provides a good
source of prospective buyers.
When selling a property
at auction in cooperation with a Realtor, we will provide
that Realtor with the list of open house and auction attendees for
them to follow up with for prospective listing or buying clients.
-
Reduced
legal liability.
The straight-forwardness of the auction method,
the openness of the auction, the Auctioneer’s emphasis on
bidders’ understanding the terms and conditions of the auction, and
our practice of tape recording the conveyance of the terms and
conditions of the auction, minimizes the Realtor’s and Auctioneer’s
legal liability.
How
Does the Process Work from the Realtor’s Standpoint?
-
Whether you have a
property that is currently listed or being considered for listing,
contact the Auctioneer to discuss the situation and ascertain its
potential as a good auction candidate.
-
If it is a viable
candidate for auction, the Auctioneer will suggest setting up a time
to inspect the property.
-
If determined to be
a good candidate for auction, you and the Auctioneer will coordinate
on developing an effective marketing program.
-
The Auctioneer will
prepare an Auction Listing Contract. You, as the Realtor, and your
Broker will be included as parties to the contract. Since there
cannot be two listing agreements on the same property at the same
time, the Auction Listing Agreement will supersede any existing
Listing Agreement, if applicable.
-
You and the
Auctioneer will discuss and coordinate the sharing of responsibilities
in preparing for and conducting the auction and follow up through
closing.
What type of Auction
Scenario Works Best?
Real estate auction scenarios can be broken down into four categories:
-
Not previously
listed and being sold by Absolute auction
-
Previously listed
and being sold by Absolute auction
-
Not previously
listed and being sold by Reserve auction
-
Previously listed
and being sold by Reserve auction
As a general rule, auctions falling in the first scenario are the most
successful and those in the fourth scenario are the least successful.
There are several reasons for this. First, because Absolute auctions
tend to generate more interest and bidder attendance than Reserve
auctions, they tend to generate higher prices. Second, when a property
is or has been previously listed, the list price serves as an artificial
price ceiling as potential buyers assume that since the property did not
sell for that price, it must not be worth that and thus they are looking
at paying a price lower than the list price. When a property has not
been previously listed, there is no identifiable price ceiling; thus,
the potential buyers perceived price range of the property’s value may
be higher. Third, for those properties that have been on the market for
several months and haven’t sold, the property takes on the “shop worn”
or “stigmatized” perception, right or wrong, that something must be
wrong with the property because it hasn’t already been sold.
How do Realtors Get Paid?
Realtors have 3 options for getting paid:
-
Split commission
basis. In this case the Realtor will actively work with the
Auctioneer in marketing and showing the property and following through
to closing. The net commission is shared between the Auctioneer and
Realtor/Broker.
-
Working on a
referral basis. In this case the Realtor simply refers the property
to the Auctioneer and does no work in preparing and taking the
property to auction. The realtor will receive a referral fee.
-
Representing a
buyer. See the following section on Broker Participation Fee.
Broker Participation Fee (BPF)
This is a commission offered and paid to Realtors representing the buyer
of the property. Some Auctioneers offer a BPF and some don’t. We
usually do. The amount of the fee may vary depending on the value of
the property and the anticipated total commission to be shared.
Auctioneers that offer a BPF usually require the Realtor to register
their prospective buyer (or client) prior to the auction. The
registration process also varies among Auctioneers. Our advice is that
if you have a client interested in bidding on a property being offered
for auction, call the Auctioneer and ask: 1) are they offering a BPF, 2)
if so, how much is it, and 3) what do you need to do register your
client and qualify for the fee. You can ask the Auctioneer to fax or
email the registration form to you on which you can register your
client. |
