Marty's Auction Blog

NOT AN AUCTION BUYER ??

We auctioned a home and acreage the last weekend in June and it did not sell at the auction. It was really a bank ordered auction but a complicated sale due to the local bank loan being guaranteed by the FmHA (the Feds). Which means that decisions are not usually made fast enough, but in our case they did a pretty good job of working with us and our time line.

After the high bid at the auction was rejected $96,000 (we knew it would be) we put an ad in the local paper and advertised it at FmHA's reserve selling price of $110,000.  So the list price was a take it or leave it price, but it was about 25K less than anything else even closely related to our property currently listed. The bank was motivated and it was a reasonable reserve selling price.  We had a ton of calls on the ad, I showed it 14 times last week, and we received a full cash offer within the week, but of course we would accept nothing less.  It's been a while since I've had to work as a Broker (I'm licensed in three states), which reminded me why I don't do listing and it refreshed my memory concerning a couple of things we should be doing at our opens.

BANKS MANAGE RISK ?

Everyone knows by now that we are in a housing “correction” to put it nicely. The price of homes has been in a free fall for the last twelve months (at least) and the market for new home construction is, well, ugly. The largest builder in Iowa closed its doors a few weeks ago and told its employees to go home. And it had over 200 homes in various stages of construction.

In a recent meeting I had with a senior banker he indicated that his bank did in fact have  foreclosure inventory on the books and would have more. But the Polk County Sheriff’s office was backed up four months due to the high volume of properties going to sheriff sales. WOW that is saying something especially for a conservative (financially) state like Iowa.

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.

Bid Assistants, Who need’s em!

I attended a friends auction the other day. He was selling 240 acres of farm land that he was dividing into four tracts through a Multi-Par method.  I went mainly because he was using a buyer’s premium which is becoming more & more accepted in the area but not completely accepted. So I wanted to see what the buyer reaction might be to the BP. You can read about my views on the BP in my "Smoke and Mirrors" post.

The BP seemed to be a none issue, but what surprised me was that he was conducting a real estate auction without using bid assistants or ringmen.  Not only was it a RE auction but a Multi-Par real estate auction to boot.( Multi-Par auction formats allow the bidders to pick and choose which parcels or combinations of parcels to bid upon. It’s a wide open format and may take up to 6 hours to complete.)

SOLD in 45 to 60 days

SPEED
Faster is always better? Usually there is a penalty for more speed. In Aviation more speed requires less drag, less weight, more lift and more POWER-Thrust. Usually one must give to get, but that’s not always the case.

If I could sell your property for 30% less than your last list price in 45 to 60 days, what would that time be worth to you?

Let’s use a real world example. A commercial building, light assembly to be exact, is listed for $2.1M.  Most local experts predict time on the market through an ordinary sales method to be approximately 14 to 24 months.  Total monthly holding cost for our sample building are $27,000.  If I sell this building in 60 days for $1.5M, (which we did) the owner would have to sell this building at full list price ($2.1M) within 22 months in order to achieve the same value that we delivered. (Do the math).

Did we sell this client TIME ? Absolutely. Did he understand, Time Value of Money ? Absolutely. Did he understand the opportunity cost associated with waiting an additional 22 months to sell his building ? Absolutely.  Could the commercial broker guarantee that his building would sell 22 months later for full list price ? Absolutely NOT.

 
I have just used a technique called Dollarization.  Until your potential client can see dollars and cents, you’ll have a hard time convincing her that you are bringing value to the proposition.
This  is also referred to by Jill Konrath, “Selling to BIG Companies” as your value proposition.  Until the potential client sees your value proposition, you’ll have very little chance selling our method of marketing.