Marty's Auction Blog

Why do auctioneers use a “secret” reserve selling price?

This question has been posed to me many times usually by a real estate agent or broker.  And now that auctions are becoming a much more popular way to sell real estate, I am beginning to see some “auctioneers” publish their reserve selling prices.  If they do it’s a pretty good tip off that this is someone new to the auction business or they don’t use auctioneers but sell through a seal bid auction format or they are a real estate broker getting into the auction business.  The reason being is that Realtors have a very difficult time working with out a list price. If they have been in the brokerage business for any amount of time at all, a “list price” becomes part of their DNA. For many Realtors, selling a property without a disclosed “list price” is like walking a tie rope without a net. For example a group of ReMax real estate brokers file suite with an auction company in Southern CA for fraud because they did not advertise the reserve selling prices of the properties they were auctioning. When their clients high bid was rejected by the seller and the reserve was revealed the ReMax agents accused the auction company of a bait and switch scheme.  They evidentially did not hire an attorney with much auction experience however, it would have been a very simple matter for their attorney to consult the US Universal Commercial Code ( UCC - the law governing all auctions) to realize that the auction company and their sellers were within their right to accept, reject or counter the high bid if it did not meet the seller’s reserve selling price.  A reserve selling price may or may not be made public, there are no laws requiring it to be made public.  Another part of the UCC that buyers should be aware of, but may not, is the difference between an absolute auction and one with reserve. Absolute auction means the property will absolutely sell to the highest bidder regardless of the high bid price.  Also the term Absolute auction or auction without reserve must appear somewhere in the advertisement for it to be an absolute auction.  If the advertising does not contain one of those phrases the auction is assumed to be with reserve. Nowhere in the advertisement must the auctioneer advertise the auction as a reserve auction in order for the property to be sold with reserve - disclosed or otherwise. So if you do not see “Absolute Auction” in the ads then the property will sell with reserve.

Has your Realtor become an Auctioneer?

Realtors use a static pricing system to present a property to the market.  Typically a list price is determined, based on comparable sales data, appropriate adjustments for time, and in this market an awful lot of guess work.  The property is advertised and placed on the local MLS and probably Realtor.com. Open houses are scheduled and a realtor usually sits in an empty house for the better part of a Sunday afternoon.  Then they wait, and wait and possibly wait some more for the phone to ring.  You start to see why I’ve call it a static pricing system. Without a mechanism to encourage competition or create urgency on the part of the buyer, the seller can feel as if they are being circle by sharks waiting for a sign of weakness.  Therefore, most Realtors will suggest to their sellers they reduce the list price by 5% or so every month or two until a buyer bites, pun intended.  In effect they have become auctioneers.  Wait a minute doesn’t an auction start with a low bid and work its way up?  In a traditional or western style auction they do, but there is an auction that works the other way around. It’s call a reverse auction or Dutch auction, where the price comes down so much over a given amount of time, until the first buyer to raise his hand becomes the winning bidder. That’s what realtors are asking their clients to do in the current buyers market.  It appears safe but its reactive and allows the buyer to drive the transaction, without I might add any form or competition between buyers, just first hand in the air (or signed offer) becomes the winning bid.  

Red Flags

I do a lot of training with, new to the business, auctioneers. Most are excited about being in this new profession and approach it as a real estate agent would approach booking new listing. Problem is, in this business we are all about selling and not about obtaining new listing. I have a complete section in my Real estate Boot camp on qualifying sellers.

Additionally, I put together a, sort of down and dirty, way to determine if in fact we can be of any help to a particular seller.  You see, I'm not in this business to see how many listing I can book, or conducting auctions that I know we have no hope of selling or spending tons of my clients money just to see my company's name in the newspaper.  I'm in this business to help people solve a particular problem AND I know that for 75% of some people (residential sellers) I won't be the right choice, and for 95% of other people (Ag land sellers) I'll be their best choice.  Anyway, here's my list.

Welcome

This is my first excursion into the realm of blogging.  My hope is my ramblings and opinions will be useful information to the auction goer and auction professional alike.
Some days I will be providing information from an “insider’s” perspective and other days I’ll want to speak directly to the auctioneer or professional bid caller.

I have approximately 25 years of experience in and around the auction business. My father started our auction company in 1981 and I assumed its leadership in 1996.  I won’t bore you with awards, and achievement or anything like that (you're welcome, if you want to know more about me use my Linkin link on this page).  We’ve sold everything from heavy equipment, farm machinery, antiques, sports collectibles and automobiles, to every type of real estate.

 
Currently, all my time is devoted to real estate auctions and bid calling.  I teach at World Wide College of Auctioneering, Mason City, Iowa.  I have served as Regional President for a company called Tranzon, LLC (a National leader in real estate auctions), selling real estate via, live, sealed bid or online auctions.  Bid caller, auction marketeer, broker, all terms to describe an auctioneer. For the remainder of this blog I’ll refer to myself as an auctioneer.

Please send me your feedback and thanks for spending some time with me. You can go to my commercial web site here  http://www.martyrogersauctioneers.com if you want to know more about my company.