The Puzzle

A few days ago I had an email conversation with one of my students from the last session at auction college. I asked him what he thought was the most important component of a real estate auction. I had a pretty good idea what his answer might be, as I’ve asked the same question to many new graduates and usually get very similar answers.

He said, “If I had to choose two of the most important it would be marketing to the correct buyers to get them there and then connecting with them on sale day”. 

The reason I ask recent auctioneering graduates this question is that most are very excited about the opportunity to get in front of a crowd and “do their thing”. Therefore, they usually answer something or another about being a good and effective bid caller, etc. However, this student's thoughtful answer demonstrated some insight into the business side of real estate auctions. Here’s the parts to the puzzle as I see them and through working with many other very successful auctioneers over the years.

In order of importance;

1. The seller: It all starts with the seller and their motivation to sell. If they are not sufficiently motivated to accept market value, the day of the auction, we should always walk away or recommend a different method.  Make sure and probe deep with your qualifying questions, get to the heart of the matter as to why they want to sell their property. The old saying, "If you get the sale booked right, the auction will take care of itself ", is 80% correct, but we still need to finish the job by completing the next 3 components. BTW this may seem callous to the seller but remember we’re not Realtors, we are not going to make a few phone calls and sell the property at the reserve listing price or throw it on the MLS and see what happens. We are going to use competitive bidding to see how high we can get the bidders to bid on auction day.

2. The Asset: Is the asset suitable for a competitive bidding format of sale? If it's a dome home or berm home that would have a very small number of potential bidders, then it probably would not be a good fit for an auction format. Certainly not an open outcry format, possibly a seal bid format would work depending upon the answer to number 1 above.  When I was with Tranzon one of our partners had conducted the auction of Consolidated Freight for the Bankruptcy courts. It took 18 months with truck terminals all over the US. The sale totaled $396M and they kept very detailed stats on bidders and sales outcomes. What they found out was not shocking, it is what we would expect. I don't have all the data at my finger tips, but it boils down to this; the higher the number of QUALIFIED bidders you have at you auction ALWAYS equates to a higher final bid price. If you have a very thin market for the asset you need to think very hard about which type of sales method you would recommend.

3. The Marketing: This of course if pretty self evident.  But what I have experienced though my training of auctioneers is this, if a student comes to me from a Realtor background, they almost always spend too little on auction marketing. Because we have a time certain date of sale, our ads must be bigger, more colorful/eye catching and intense. They should scream DON"T MISS THIS SALE. It doesn't do me or my seller much good if you hear about the auction the day after the sale, or if you simply remembered the wrong date. Everyone is so busy these days, we absolutely must conduct telemarketing follow up with our prospects and use social marketing and all the Web 2.0 techniques we have in our marketing tool box.

4. Auction Day: Do you have a very experiences quarterback leading your team of auction professionals? Does everyone on your team know what his or her job is auction day? Are your bid assistant completely familiar with the asset and its pluses and minuses and can they generate instant rapport with potential bidders? Has the owner been fully debriefed concerning the results of your marketing program, good AND bad? No body likes surprised and auction day is the worst time to surprise the owner with poor attendance and poor bidding IF you already know going into auction day that interest will be low for her property. Tell her a few days ahead of the auction, don't shock her with the bad news auction day.(And don't lie to yourself, if there is no interest before the auction, you can be sure there won't be any sale day either.) Is auction day truly an event and not an ordinary sale?  I've offered door prizes before such as an ipod, or to warm up the crowd at our residential auctions we've sold bird houses and given the proceeds to the local children's homes.  And as Marty Higginbotham has said, don't start the auction until you can see the whites of their ........ teeth. If we’ve executed the first three components with professionalism and skill, auction day will be a very pleasant experience for everyone involve. Your auction team will make it look so easy people will think you should be working for free! But I look at this way, we're worth every penny!

Good luck with your real estate auctions. And remember it’s a public auction and everyone is watching. Do the very best you can for your client, yourself and the industry.