Real Estate Auctions – The New Land Rush

On a sunny afternoon in Florida, an energetic crowd gathers on the lawn of a high end luxury estate. A loud and eager banter between an auctioneer, a group of bidders and bidder assistants fills the air. For several minutes the auctioneer asks for the next highest bid and the bidders respond. Suddenly the bidders grow silent. The high bidder holds his breath in anticipation of winning the auction. The auctioneer calls for one more bid. In a loud clear voice which rolls over the audience he says, “Fair warning, last chance” the auctioneer pauses, “SOLD!” And in less than 10 minutes another multimillion dollar estate has changed owners.

Successful real estate auctions like the one above are happening all over North America and the Caribbean. Recently real estate auctions have been on the rise, the increase in popularity is partly driven by growing inventories and fading buyer confidence. Properties that were selling in weeks using traditional methods are now languishing on the market unable to attract buyers even as seller’s lower prices. Many say the real estate boom is over but savvy buyers and sellers are profiting from real estate auctions.

Real Estate Auctions Work in Up or Down Markets.

Regardless of trends or market cycles, real estate auctions provide an open and transparent process for buyers and sellers. Properly conducted real estate auctions attract ready and willing buyers and motivate them to act now.

The auction method removes the “wait and see” attitude which serves to further depress real estate values. Buyers are always concerned about overpaying. Buyers gain confidence with their purchases at real estate auctions because they can see what others are willing to pay.

When market demand is high and inventories low, real estate auctions can deliver selling prices well above what a willing seller would have accepted in a negotiated private treaty sale. In good selling climates many property owners using traditional real estate methods; negotiating with one buyer at a time, leave thousands of dollars of equity on the table. During up markets real estate auctions are the best way to establish top market price.

Evaluating Your Real Estate for Auction

Not every property or seller for that matter makes a good candidate for auction. First of all sellers must be ready to sell now and for the current market value. Also a real estate auction will not fix problems caused by a downturn in market value of your property, if you owe more than a willing buyer will pay, be prepared to come to closing with your check book.

Properties that do well in real estate auctions have a high uniqueness factor. Ask your self, “What makes my property different from most others?” Maybe you own a resort property or high end luxury home, commercial properties and land do very well at auction. Real estate auctions thrive on uniqueness. If your property is like everyone else’s, the best thing you can do is offer the most competitive price.

Most importantly sellers must be reasonable about setting a minimum bid. A seller must look at the lowest, most current comps and price below that to generate the interest and urgency necessary for a successful real estate auction. Once the auction begins and qualified bidders start competing against one another you can watch the selling price increase.

Locate a Qualified Real Estate Auctioneer

Start by checking with the National Auctioneers Association, the best real estate auctioneers belong to this organization. These real estate auctioneers are well trained and adhere to a standard of practice and a code of ethics. Many attend the annual International Auctioneers Conference where the latest techniques and innovations in the real estate auction industry are presented.

Find out if the company you are interviewing is a full time real estate auction firm. Many real estate agents are getting auction licenses yet have no experience with the auction method of marketing. Conducting a successful real estate auction is nothing like (private treaty) traditional real estate sales. Go with a real estate auction pro.

You’re probably better of with an auction house that specializes in real estate auctions. There are many qualified auctioneers who have generations of experience selling personal property; furniture, dishes, lawn equipment and the occasional rare painting. Selling real estate at auction is a complex matter that should only be attempted by full time experienced real estate auction professionals.

Commissions and fees may vary, sellers must pay all marketing expenses up front and buyers typically pay 10% of the sales price to the auctioneer of which a share goes to participating real estate agents.

Types of Real Estate Auctions

Auctions are effective because they create a seller’s market. Professionally conducted real estate auctions create urgency, a reason to buy today and competition for the property. Terms and conditions of sale are established ahead of the auction. Real estate auctions will follow one of these three approaches:

Absolute Auction

The property is sold to the highest bidder regardless of price- using this process often returns the highest sale price.

Minimum Bid Auction

Seller agrees to sell at or above a published minimum bid price – this method is useful for internet auctions.

Seller Confirmation or Reserve Auction

With a reserve auction, the seller “reserves” the right to accept or decline any bids usually within 48 hours of the auction. Reserve auctions are used when there is a lien on the property from a lender or a court ordered sale with a minimum selling price.

Planning Helps a Home Based Business to Be Efficient and Successful

The very first step towards a successful home based business is some self introspection. What are your skills and talents? You may possess good communication skills in which promotion and sales of consumer products would be god for you. Writing or mathematical skills all serve as a good base for being a self employed professional. Chalk out all your skills and make a list of the possibilities when starting a home based business.Various business possibilities to start from home
Free lance chartered accountancy
Home based cosmetic and consumer sales and consultancy
Tax consultancy
Web Content specialist
Business organization and training
Cookery classes and catering
Interior designing
Computer hardware or software specialist
Factors and pitfalls that influence home businessOnce you have your list narrowed down to the best possibilities you should work out the infrastructure and financial aspects necessary that will support the possibility of the business. Working out the business logistics that comply with your home is a matter of great importance. The factors that are going to determine your business are,Location: you cannot start a bakery in a crowded domestic neighborhood waking people in early hours of the morning. Avoid running a business in a crowded domestic neighborhoodSpace: you will need a certain amount of space dedicated to the running and functioning of your office. Space would include a storage area depending on the product. Cluttering your home space with supplies and goods will lead to chaos. Always take your available home space into account.Finance: one must consider the amount of finance required for various businesses. Starting something that requires exorbitant amount of money like franchise fees may not be feasible. Avoid getting into debts which will incur a loss rather than a profit. Make out a projected statement of accounts to see how much of a loan can be incorporated within the business income.Documentation. Every Home based business requires minimum government documentation like a trade license. For documentation required to start a business you can visit your local authorities for further information. Do not start a business that requires complex documentation and verification.Once the main aspects to be considered are done you should start on working out the number of employees you may require for assistance. Starting a home based business may require just a couple of senior level employees. An office and secretarial assistant and in the case of consumer products, one or two delivery men. Where accountancy and tax consultation services are concerned these may require a maximum of two assistants and a clerk to help with all the documentation and clerical work.Once you have got around to starting a home based business, you need to motivate yourself in order to keep it running efficiently and grow as well. Structure a good working routine which will not allow you to be distracted. Working from home may lead to certain distractions which could hamper the business. Therefore learn to incorporate family time within or after business hours to ensure a smooth operation of the same. Hire a babysitter if necessary if you have a young child at home.Promotion and advertising are important factors that determine the success of your business. Self promotion through word of mouth is a good way to help your business gain popularity. Advertising costs are expensive, the best possible way is to be as efficient as possible so that recommendations keep coming your way. Follow these important guidelines to assure a successful home based business

Hiring An Auction Company

Estimating your assets value:

Typically, one of the first questions a business owner will ask me is, “how much will the assets bring at an auction”. After taking the time to review the assets, the auctioneer should give the client a conservative estimate of the sale based upon his experience and the current market trends. It is important that the company give realistic expectations so the seller can make informed decisions based on their best interest.

Compensation and Expenses:

Is the company you are considering working for you or against you? The agreement you decide may determine this.

A business owner should carefully consider how the auction company is compensated. The most common commission structures include: straight commission, outright purchase of assets, guaranteed base with a split above to both auctioneer and seller, guaranteed base with anything above going to auctioneer or a flat fee structure.

In a straight commission structure, the company is paid an agreed upon percentage of the total sale.

In an outright purchase agreement, the auctioneer simply becomes your end buyer. The company purchases your assets and relocates them. While this can be an option in some unique situations, keep in mind that they will want to purchase your assets at a very reduced price to make a profit at a later date.

In a minimum base guarantee, the auction company guarantees the seller that the auction will generate a minimum amount of sales. Anything above that amount either goes to the auction company or split with the seller. While a seller might feel more comfortable doing an auction knowing that he is guaranteed a minimum amount for his sale, keep in mind that it is the best interest of the auction company to secure a minimum base price as low as possible in order reduce their financial liability to the seller and secure higher compensation for the sale.

In a flat fee structure, the auctioneer agrees to show up for the sale and call the auction. There is no incentive for the auctioneer to get the best prices for your assets. The auction company is compensated regardless of the outcome of your sale.

What is the best option for business owners? In my experience, an agreed upon straight commission structure. This puts the responsibility on the auction company to offer the best outcome for everyone involved. There is an incentive for the auction company to work hard for both parties, set up and run a professional sale, get the highest bid and sell every item on the inventory. Successful auctions translate to a higher bottom line for both the seller and the auction company.

Auction Expenses:

In most auction agreements the expenses to conduct an auction are passed to the seller. If the auction company pays for the expenses, it is simply absorbed in higher commission rates.

All expenses should be agreed upon in advance in a written contract. Typical expenses will include the costs of advertising, labor, legal fees, travel, equipment rentals, security, postage and printing. A reputable auction company will be able to estimate all expenses based upon their experience in previous auctions. An agreement should be actual costs charged as expenses, not an estimated amount.

Advertising is typically the highest cost in conducting an auction. The auction company needs to set up an advertising campaign that will promote the sale to its best advantage and not overspend to simply advertise the auction company.

Once the auction is complete, the auction company should provide a complete breakdown of all expenses to the seller, including copies of receipts within the auction summary report.

Buyer’s Premium:

What is a buyer’s premium? If you attend auctions regularly, you are very familiar with this term. The auction company charges a fee to the buyer when they buy an item at auction.

The buyer’s premium has been around since the 1980′s and is standard auction practice. It was first used by auction houses to help offset costs of running brick and mortar permanent auction facilities. Since then, it has spread to all aspects of the auction industry. It is prominent in online auctions and allows auction companies to cover added expenses incurred from online sales.

It is the responsibility of the auction company to provide clear disclosure of the buyer’s premium to both the buyers and the sellers. Those not familiar with auctions are often taken back by the buyer’s premium. They looked upon it as an under handed way for the auction company to make more money. Reputable auction companies will provide full disclosure within the auction contract, advertisement and bidder registration.

Typically, an auction company will charge online buyers a higher buyer’s premium percentage than those attending an auction in person. Extra fees are incurred with online bidding and are charged accordingly to online buyers. This provides the seller a level playing field for both online buyers and those attending the auction in person. Without the buyer’s premium, there is no way to do this.

Pre-Sales:

We’ve all been there. We’re looking forward to attending an auction only to find that some items were sold prior to the auction date.

As an auctioneer with over thirty-six years of experience, I can honestly state that pre-sales will hurt an auction. When a company decides to liquidate their assets, it is easy to sell off high-end pieces of equipment through online sources, equipment vendors or to other businesses. The seller receives instant cash and avoids paying a commission to an auction company.

Auctioneer’s find themselves appearing to acting in a self-serving capacity when potential clients say they are planning to sell off parts of their inventory prior to an auction. It’s hard not to consider the auctioneer’s commission when they warn you not to pre-sell anything. Yes, the auctioneer wants to earn a commission on those sales but it is more important that the auctioneer protect the sale from potential negative backlash that comes from pre-selling. The buying public knows when an auction has been “cherry picked” prior to the sale and it reflects in their bidding. It becomes a sale of “leftovers” and that impacts prices.

A buyer who purchases prior to the auction usually does not attend the sale. They already bought equipment at a good price with no competition. If they do attend the auction, they tend to let others know of their great pre-sale purchases which again, impacts prices and the overall excitement of the sale.

It is important to understand that auctions work best with a complete inventory. You want competition on your higher end equipment. The easy to sell items make it possible to gain respectable prices for hard to sell items.

When a business owner decides to liquidate their equipment assets, there is only one opportunity to do it right. Hiring a reputable auction company will assist you with a professional, orderly and timely liquidation.