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18 February 2009

Real Estate Auctions: A New Perspective

Auctioning real estate, a sales method we most associate with foreclosures, is now being applied to move houses and condominiums not being repossessed by the lending institutions, as the demand for well-priced real estate continues. While some auctioneers say that such public sales will continue to be used for real estate even as the market improves, many developers and real estate specialists believe this trend is born of the times we’re in and will fade once the surplus housing stock does.

Real estate auctions have not only demonstrated an ability to sell, but they are strongly influencing the sale of properties in the online environment as well. In the face of the U.S. housing market concerns, more and more people, particularly out-of-state and foreign investors, are utilizing online auctions to purchase properties. However, one of the most telling signs that this trend could get bigger before it fades is its growing acceptance among traditional real estate brokers.

Implications for Residential Real Estate Companies

Over the past few years, auctioneers have noted strong growth in the number of first-time sellers. Today, the auction market for real estate has grown to $65 billion-plus in sales. According to a study done by the National Association of Realtors, the future of the real estate auction business may be heading toward one in every three properties being sold or influenced using an auction listing. If that’s the case, any brokers looking for new opportunities to generate additional revenues, might want to consider opening an auction division.

The auction method of marketing involves more than just making a sale. It involves orchestrating a business transaction and entering into a commitment to meet the needs of sellers, buyers and Realtors® alike. The object is for the outcome to be positive for all parties involved, so please consider the points that follow as they apply to your specific market area.

Benefits to Seller

  • Buyers come prepared to buy
  • Quick disposal reduces long-term carrying costs, including taxes & maintenance
  • Assurance that property will be sold at or near true market value
  • Exposes the property to a large number of pre-qualified prospects
  • Accelerates the sale
  • Creates competition among buyers – auction price may exceed the price of a negotiated sale
  • Requires potential buyers to pre-qualify for financing
  • The seller knows exactly when the property will sell
  • Eliminates numerous and unscheduled showings
  • Takes the seller out of the negotiation process
  • Ensures an aggressive marketing program that increases interest and visibility

Benefits to Buyer

  • Properties are usually purchased at fair market value through competitive bidding
  • The buyer knows the seller is committed to sell
  • In multi-property auctions, the buyer sees many offerings at a single event
  • Buyers determine the purchase price
  • Auctions eliminate long negotiation periods
  • Auctions reduce time to purchase property
  • Purchasing and closing dates are known
  • Buyers know they are competing on the same terms as all other buyers
  • Buyers receive comprehensive information on property via due diligence packet

Benefits to the REALTOR®

  • Generates a list of ready, qualified buyers
  • Offers clients and customers alternate selling and purchasing options
  • Increases revenue and market share
  • Develops an alternate market niche
  • Assures property will be sold at or near current market value
  • Property is sold within a relatively short period of time
  • Exposes the property to many potential purchasers
  • Auctions bring people in to look at all your listings, not just the auction listing
  • Successful auctions result in referrals and return business
  • Agents can earn commissions as referring agent/broker, cooperating agent/broker, or as the listing agent/broker

All of this being said, the idea of integrating the auction process into residential real estate transactions is compelling.  The introduction of auction services into a range of services would provide yet another avenue for buyers and sellers who seek some of the specific benefits cited above.  As real estate professionals consider which operational tools will help to differentiate them in future years, it could well be that auction services will become a mainstay.

8 thoughts on “Real Estate Auctions: A New Perspective

  1. I have definitely seen agents shy away from auctions because of their stigma with foreclosures, but the fact is that sometimes an auction is the best way to move a property.

    Thanks for the excellent breakdown of benefits for all parties involved. If this doesn’t help agents “see the light” about auctions, I’m not sure what will!

    Jeremy B. Shapiro
    http://www.ForeclosuresMass.com/
    Blog: http://www.ForeclosuresMass.com/blog/

  2. Jeremy,

    Thank you for your comment. I think that there is quite a bit of fear about auctions. Much of this simply stems from agents unfamiliarity with auctions as a marketing tool. In our rapidly changing world, I believe that success, or lack thereof will be largely the result of a person’s ability to adapt and grow.

    When it comes right down to it, auctions are simply another way to serve the public and help consumers achieve their real estate goals.

    Thanks again,

    Bob

  3. Bob,

    Great article. I agree with you 100%. It’s interesting to see such a range of Realtors who understand change and embrace it while so many others, let themselves be turned off by the word “auction” without even investigating anything about them.

    I too see the benefit of online auctions which will not disappear even in a buyer’s market.

    Tom Wood
    Real Estate Auction Systems

    1. Thank you for your response Tom.

      It is certainly true that real estate professionals take varying views of the auction process. It should be interesting to see how things unfold going forward and how the role of auctions in real estate develop over time.

      Bob

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