The Benefits and Risks of Real Estate Auctions

As many people have discovered, the traditional realtor firm isn’t the only way to sell a property. Real estate auctions are increasingly popular among people who buy and sell properties. As an alternative to the traditional marketplace, “[t]he benefits of selling via auction are particularly obvious during the bidder qualification period.” (Source: “Brokers See Benefit of Auction Process”, National Real Estate Investor) If you haven’t considered the auction route, you should keep the following benefits and risks associated with the auction process in mind. You may find that it suits your property-selling goals.

Benefits of Real Estate Auctions

One of the major reasons sellers seek the auction format is because it often allows them to dictate terms and conditions as well as a deadline. Selling for cash also allows sellers to move forward with their plans without delay once the sale is made. Since roughly 90% of auction sales close, there is every possibility that the deal transaction will close without a hitch–particularly with pre-approved buyers in attendance at the auction.

When it comes to complicated properties, many auction houses actually recommend the use of brokers. This provides sellers with the best of both worlds–the auction format coupled with the selling expertise of the realtors. Often sellers obtain great prices for properties they sell at auction–more than they expected. This is usually because buyers come prepared with a cap and may bid until they reach that cap.

Risks of Real Estate Auctions

While selling properties at auction often results in a great deal, it doesn’t always. There isn’t any guarantee that the price will be bid up by other interested parties. Also, sometimes bidders do not have the opportunity to have home inspections. Buying a home without an inspection is risky for the buyer, so the more inspection information you can present the better. Property sellers “have dozens of decisions and choices on both advisor sale terms and many auction formats.” (Source: “Commercial Real Estate Auctions in Soft Markets”, Heritage Global Partners) It’s important to weigh these considerations carefully. What is the minimum acceptable bid or can the property simply be let go to the highest bidder? These questions must be mulled over in advance.

Sellers who sell at auction have to rely on marketing. While a great auction firm often has regular clientele, some may not do all they can to market your auction. You may want to promote your upcoming sale online or at other venues in order to attract potential buyers to your sale.

Work with a Reputable Auction Firm

When you attend auctions hosted by reliable and respected auction houses, you’ll feel more comfortable about the process and may even find that some risks are mitigated. Many sellers find the auction route liberating. They can plan accordingly because they know what day they are selling their house. Working with a trusted auction firm with experience in real estate is essential for sellers who may be new to the action process.

These are a few of the pros and cons associated with selling a property at auction. Before you make your decision, talk to an auction house that can answer your specific questions and address all your needs.

Source:

“Brokers See Benefit of Auction Process”, National Real Estate Investor, http://nreionline.com/retail/brokers-see-benefit-auction-process

Estate Liquidation – Pros and Cons of Tag Sales and Auctions

Executors faced with liquidating an estate’s personal property will quickly find that it is their most time-consuming administrative task. Executors who don’t perform their duties could be removed from office by the Probate Judge, so it is important that they single-mindedly pursue disposing of the estate’s property so that the bills can be paid and the estate settled.

What you’ll get from this article

Executors have three main liquidation options, and I will discuss the pros and cons of each in this article. Any company chosen to liquidate an estate should be vetted; I will tell you how to do this conscientiously, and I will also propose the best liquidation method. I assume that the twin liquidation goals of the Executor are to achieve the greatest cash benefit to the estate and to leave the house broom-clean so that it can be sold. Of course, there are ways to maximize the cash return for each type of sale, and I’ll tell you what they are.

Investing ten minutes into reading this article could save an Executor many hours of work.

Option 1: Have An Auction On-Site

Benefits of an On-Site Auction:

Auctioneers are very competitive lot. It should be an easy job for an executor to find an auction company willing to take the estate liquidation job, and commissions will be competitive. A strong argument for an on-site estate auction is that when the auction is over, there will be very little clean-up. If you like, the real estate can be auctioned as well, since auctioneers are licensed to auction the real estate and other titled property. In one day, the house, car, boat, RV, and all the household goods could be sold.

Negatives for an On-Site Auction:

Auctions are driven by competitive bidding. Consequently, it is necessary to have a lot of people at your auction. Big crowds require nice weather, plenty of parking, bathrooms, food, and refreshments to keep the people from leaving. Online bidding can be included to boost attendance, but it is the local crowd that builds excitement and drives the prices up. To attract a crowd, the estate must have collectibles and other quality goods. Run-of-the-mill goods that can be purchased at the local thrift store are insufficient to attract a good auction crowd.

Suggestions for an On-Site Auction:

If your estate has many large collectibles, like antique furniture or a piano, an on-site auction may be your best choice. Summer weekends, when the weather is warm and dry, are the best times to hold an on-site estate auction. The auction company you hire should be equipped with sound equipment, canopy tents, display tables, and plenty of help for fast checkout.

Option 2: Auction Gallery Consignment

Pros for Auction Gallery Consignment

If weather is a concern, you may want to consider consigning your items to an Auction Gallery. Consignments at an Auction Gallery are grouped according to the type of item in order to maximize turnout and get the best prices from their collectors. For example, there may be an auction dedicated to art and home decor, or musical instruments, or ceramics.

Cons for Auction Gallery Consignment

There are quite a few reasons for not consigning to an Auction Gallery. For starters, many Auction Galleries will take only the best items from the estate. Ninety percent of an estate is made up of items that are of little interest to the auctioneer, which leaves the Executor to deal with the remaining ninety percent of the estate property. Lastly, when an Auction Gallery spreads the merchandise out over several auctions, it can take months for all the items to sell, delaying the closing of the estate.

Tips for Auction Gallery Consignment

Before you consign to an Auction Gallery, ask the auctioneer how your merchandise will be distributed between auctions; get a guaranteed settlement date. You will also need a plan for disposing of all the remaining estate merchandise.

Option 3: Tag Sale On-Site

Pros for Tag Sale On-Site

Tag sales have several advantages over an on-site auction. For those that are not familiar with tag sales, the sale is held on the premises and in the house. Companies that specialize in tag sales are less common than auction companies. At a tag sale, everything in the house is priced, much like at a yard sale. Shoppers will browse through the house, and choose the items they wish to buy. When buyers arrive at the house, they take a number, and are admitted into the house when their number is called. Tag sales usually start on Friday evening and end Sunday evening, so there is no need to provide food or bathroom facilities. Tag sales can be held rain or shine and in any season

Cons for Tag Sale On-Site

The biggest disadvantage in hiring a tag sale company is that tag sale companies are not held to the same legal standards to which auction companies are held. Auctioneers and Realtors are bound by law to the estate by a fiduciary bond. A fiduciary relationship binds the agent by law to act at all times in the best interest of the estate. Fiduciaries are licensed by the state, must pass tests, be bonded, must hold all funds in an escrow account until distributed, and has to settle the account with the estate within a specific time frame.

Fiduciaries must also keep accurate records and follow certain protocols. Failure of a fiduciary to follow procedures can result in fines or loss of license. Tag sale companies are not held to the same legal standards, although they certainly have a moral obligation to the estate. Tag sale companies can handle the details of the sale and the distribution of the money any way they see fit.

Another problem with tag sales is that typically there is merchandise left over after the sale. Often, there is a LOT of merchandise left over. When a lot of items are left over, the executor then has a clean-out problem, because the house must be left “broom-clean” before a realtor will list the house for sale. Unlike an auction, where prices go up with each bid, tag sale shoppers want to negotiate a lower price for everything, which is not only time consuming but costs the estate money.

Tips for Tag Sale On-Site

When working with a tag sale company, read the contract thoroughly, make sure settlement dealines are included. the operator should have a solid pricing plan, adequate staff, and a solid track record.

What about Internet Sales and Retail consignment?

Internet sales work well for items that can be shipped easily, like small collectibles, books, and artwork. Before you decide to sell these items online, remember that having a nice assortment of collectibles at your auction or tag sale is what will attract the buyers to your event. If you sell all the good collectibles online, you won’t get very good attendance at your sale. Dont even consider a retail consignment; they will take too long to sell your items.

How do I know if I am dealing with a reputable company?

Unfortunately, asking for references doesn’t always work; no one gives a bad reference. The Better Business Bureau lists ratings for some, but not all, companies. With an auction company, most states have an occupational licensing board which can give you the status of an auctioneers license and tell you if they have any complaints on file. Checking up on a tag sale company is a lot harder, because there is no agency keeping track of complaints. One website that is helpful is http://www.ripoffreport.com. When at the site search the name of the company you wish to investigate; also type in the owners name to see what that brings up.

Hire a company with a solid internet presence

These days, it is imperative for a company to have an online network. A company that is well-connected in the online world is likely to be a company that is well-networked in the local area. It’s unlikely that a company with a poor or no website will be able to use the internet to generate sales for your event. Doing a Google search of the company’s name or web address is the best way to to see how well connected they are. Go to Googles search bar (not the address bar at the top of the page, but the search bar in the center of the page) and type in the companys web address starting with www. How many search results are returned that pertain directly to the company you are investigating?. If the company is a national franchise, disregard the results for the general franchise and only count the results where the local company is mentioned. Ranking well with the search engines doesn’t necessarily mean the company will be the best one for your needs, but it is a good indicator of the professionalism of the company. Typically, companies that have lots of returned results do so because other organizations want to associate with experts in their field, so they link to the experts website. A large number of linking companies is like a “vote” for the company being linked to. A company that displays lots of Google results is usually one that is recognized as being expert in their field.

So, what’s the best way to liquidate an estate?

The best type of sale for estate liquidation is to hire a licensed fiduciary to sell the estate property in one day, to the bare walls, any time of year. To achieve this would require an event that is part tag sale and part auction, run by an auctioneer. Since Tag Sale operators are generally not licensed auctioneers and auctioneers usually hate to do tag sales, that’s a tough solution to implement. There are auctioneers that combine these services, however. Finding such a company will give an executor the flexibility of having a sale any time of year, the ability to sell down to the bare walls with nothing left over, and the assurance of dealing with a state licensed and bonded fiduciary.

Real Estate Auctions – Can You Handle the Pressure of a Real Estate Auction?

There are two types of real estate auctions, bank foreclosures and house auctions. Both are very different, neither is easy.

Most the time when we think of real estate auctions we think of bank owned foreclosures. That is not always the case, though. Some owner occupied properties have found success through house auctions, as well. The best candidate for this method of sale is a hard to sell house that has unique properties that do not appeal to, or hold value for, other people. A good example of this is your average 1500 square foot house with custom book cases, a full service kitchen built onto the back deck and an indoor recreation area with a built in swimming pool, shower area, bathroom, and wet bar.

Although these items may sound delightful, most buyers are not keen on paying the significantly upgraded price, as compared to other homes of the same style and size that has accumulated from all the customizing. The seller of such a house has to understand that although it is plain to see how much money was put into the upgrades; buyers just don’t want to pay the price unless it is the exact thing they have been looking for. The Seller takes part in a house auction hoping to gain a lot of exposure quickly and find someone who appreciates the eccentricities of the house. With a home auction of 8 or 9%, compared to the 6% of a regular real estate company, the house auction method of selling a home is not always the best option for home sellers.

Bank foreclosure real estate auctions are altogether different. To begin with, their chances of selling are slim. Being that the house was defaulted, the house likely has thousands of dollars due in delinquent taxes, water bills, and special assessments in addition to the amount owed on the mortgage. The minimum bid is usually set, by the bank, to include these costs as well as all foreclosure and attorney fees. Rarely does a house go through auction that is actually worth all that is owed upon it.

The negotiation process is quite different between house auctions and bank foreclosures. With a house auction, buyers are bidding against other buyers. There is probably a reserve that must be met or no sale will be made, but basically the deal is made to the highest bidder. In contrast, bidding in a bank foreclosure auction, a buyer is bidding against the bank and buyer and bank will counter offer back and forth until terms are met or the buyer quits negotiating. The banks are tough and not really expecting a sale at auction, anyway, so any ideas on a buyer’s part that they can bully a bank and the bank will be happy to be rid of the house, are way off track.

The amount of pressure involved in both scenarios make real estate auction buying and selling an activity reserved for a certain type of person. There is a lot of stress involved with buying a house at auction from a foreclosure bank as bidding with the bank is frustrating and the house is always sold in “as is” condition so you cannot be sure what you are looking at for repairs until after the sale is made.

The pressure of the individual seller at a real estate auction comes into play as the bids come close or at the reserve price. When to cut your losses is a tough decision because whether or not the house sells, the auctioneer must be paid. Additionally, with the public now having the pricing information of the house, it will be difficult to get higher bids at a later auction or through a conventional real estate negotiation. It is wise to explore other options before deciding on a real estate auction.