I received some good feedback regarding my recent blog post about LoopNet and AuctionPoint. Some of the comments got me thinking deeper. I began to wonder about the future of real estate auctions. I do this all the time, but this time I was more focused… I wondered who can really do a better job — an auctioneer or an online auction site? By “better job” I mean getting the seller more money for his or her property. At the end of the day, that is all that matters to the client. Anybody who tells you otherwise doesn’t interact with clients!

I know the answer to my query (a technologically-savvy auctioneer whoops an online auction site in a landslide, every time). But in the interests of good argument, I’ve decided to investigate, keep a record of the factfindings, and post it all here.

Until later…

I read today that Loopnet, the the largest and most heavily trafficked commercial real estate listing service online, has made a strategic investment in AuctionPoint.com, the latter being one of many “new” auction companies or platforms that don’t involve an auctioneer at all, only technology.

The concept is relatively simple — eliminate the auctioneer from an auction transaction.

Direct from the AuctionPoint.com FAQ: “Do I need an auctioneer’s license to use AuctionPoint?” No. State auctioneer license statutes do not apply to online auctions. However, any listing broker using the AuctionPoint tool must be a licensed real estate broker (or licensed sales agent working under a licensed broker). All users of AuctionPoint are encouraged to contact their respective state agencies to make sure that they comply with all applicable laws (e.g., revenue taxes, real estate licensing and disclosure, etc.).

I wonder whether AuctionPoint and LoopNet have thought things through thoroughly.

A few issues come to mind. First, if I were counseling AuctionPoint, I would keep the focus off of the broker licensing issues and more on whether AuctionPoint is conducting its services within the letter and spirit of the law. After all, depending on where an auction property is located or marketed, AuctionPoint (rather than the broker involved) may violate local laws and regulations by providing real estate brokerage services and/or auction services without a license.

Second, Loopnet generates considerable revenue from licensed auctioneers who post their auction properties and pay hefty listing upgrades to give them more exposure. Marketing AuctionPoint “as its exclusive online auction offering” has the potential for backfire. In my opinion it is the equivalent of Loopnet endorsing CBRE as its preferred broker. Loopnet is supposed to be an impartial provider of commercial real estate data, not a competitor to its clients.

Third (and these are just the top three after a quick read of the press release), the AuctionPoint model is a slap in the face to licensed, skilled auctioneers. Read the press release and the AuctionPoint site and you’ll agree. Here’s a snip: “… brokers can offer their clients an accelerated disposition process, while maintaining their full commission.” said Jason Greenman, LoopNet’s Senior Vice President of Corporate Development. And from AuctionPoint “Although other auction companies claim to assist the broker with marketing to justify the higher fee structure, no single auction company can possibly understand the broad range of commercial property types and markets as well as the local broker. … Importantly, our model allows the brokerage team to earn and keep 100% of their commission.” The message I’m getting from AuctionPoint and Loopnet is that auctioneers are involved in the auction process simply to collect a fee and provide no valuable services; that the education, training and experience of an auctioneer and his or her support team can be supplanted by lowering fees and placing a broker with no auction experience in charge of an auction campaign.

Neither of them get it.

And that, readers, is scary. More later.

We are an auction company. We represent auction sellers. We have a legal duty to get them the highest possible offers for their properties. So if we come to interview you for a potential auction sale, we’re not going to offer you cash for your property. We’re not going to put a contingent, assignable contract in front of you and ask you to quickly sign it. We’re not going to try to control your property and wholesale it for a profit. Sorry. If you’d like this service, it is available… just not from us.

At our meeting, we’re going to talk with you about the auction method of marketing and why you are (or are not) a good candidate for auction. We’ll make you feel comfortable every step of the way if we move forward from there. We are a respectable, fair auction company. Our model ensures that when we conduct a successful sale, we are adequately compensated and at the same time you are satisfied with the results. Skimming equity from you just doesn’t fit with our business model.

If you are fair, honest and professional, people can confirm this from their business dealings with you. If you aren’t, you can spend thousands upon thousands of dollars in advertising dollars trying to convince people otherwise (but you can’t really expect anybody to believe it).

So I’ve been surfing a bit lately, checking out the ever-evolving landscape of internet auctions. One of the latest fads seems to be the countdown auction on a pay-per-bid system. It goes a little something like this:

• bidders purchase bids
• each bid entered for an item raises the bid price by a predetermined amount (often  $0.01)
• as the clock ticks down bids finally get placed
• each new bid extends the auction a bit

So I watched a few of these and pulled out my mental calculator. It’s downright scary what some folks are able to get away with.

Here’s a common setup. Bidders buy bids for $1.00. Each bid increases the sales price by $0.01. As you might imagine, all of the bidding occurs late in the auction and auctions with bidder interest get extended, extended and extended again. The winner is the one who has enough time to still be bidding when the auction finally ends. This is usually the same fool who purchased enough bids at 100 times their value to make sure he won’t run out.

I watched a Nintendo Wii sell for $15.55 the other day (sure wish I was the winner — I paid retail this Christmas). It only took 3 hours of extended bidding time to get to that final price. According to my calculator, the final sales price (at roughly 10% of retail) netted the seller the aforementioned price (less any fees and commissions) and the auction site earned $1555 from the sale of the bids that were entered at this “auction”.

The next time I hear someone complain about paying a Buyer’s Premium I am going to send them a link to the latest “revolutionary” online auction site. Ptooey.

This is a unique opportunity. Most of our auction properties are not the subject of blog entries. This group of properties deserves a little extra attention.

What makes our April 26, 2010 commercial property SEALED BID auction in Hyattsville so unique is the location. This offering involves street retail and office space plus an interest in a large parking lot, all located at the corner of Baltimore Ave (US Route 1) and Farragut Street, close to the DC border and right next to the District Court and County government buildings. Property addresses are 5100-5108 Baltimore Ave and 4342-4344-4346 Farragut St. As a bonus, EYA is breaking ground as I write this on Phase 2 of the Arts District, a massive project. Click here for more information from those in the know. Phase 1 has already been completed. One recently improved parcel is leased to a busy beauty salon. A long term bail bond tenant occupies another unit. All office space is leased except for one large unit built out to be 10 or so shared office suites. The prime retail space at the corner at street level is vacant and awaits an owner-occupant’s headquarters or a smart vendor.

Due to partnership dissolution, these properties will be offered individually, in groups and as an entirety at public auction on Monday, April 26, 2010. Prospective buyers must submit their sealed bids with required deposits on or before April 26th at 3pm. High-end multiple use properties such as this may have suitors across the country or around the globe, and permitting remote bidding provides these prospective buyers the opportunity to make their best offer without physically attending a sale. There is a 10% Buyer’s Premium. It is a reserve auction sale. The property will be shown by appointment by calling the auctioneer’s office at 888.704.TRAC (8722) x100 for Paul Sobwick, Auctioneer, or myself at x111.

All types of properties including high-end, unique and commercial properties are being taken to auction by their owners - following a new trend in real estate sales. TRAC works with and in addition to listing agents to employ cutting-edge marketing tools to attract buyers in a short period of time. The TRAC auctioneer and his team work with the seller in choosing the best options for marketing their real property, strategising right up to sale day, utilizing tools such as entertaining pre-auction offers, sealed bids, internet and live outcry auctions. Buyer agents are invited to become part of the auction process, and when representing a client in a sale, they are paid a commission for their efforts.

Click here for more property information and to obtain the sealed bid packet. We’ve just posted due diligence including owners title insurance policy, a recent survey. Contact us directly for copies of leases and rentroll.

3% Broker co-op; 10% Buyer’s Premium; 60 day settlement required. Even if you don’t have or know a buyer, if you would help us spread the word about this property and the 4/26 auction, it would be greatly appreciated.

-–Tom Gimer, Principal, 888.704.TRAC (8722) x111

Quite frequently we come across certain deals which we call “no brainers” — these are properties which we think simply must sell because it makes no sense for buyers NOT to make the purchase.

Here’s an example.  A commercial property will be sold to the high bidder at $100,000 or above. Of the six units in this building which is located on a busy street, three of them are rented for a total of $2000 per month. The rents are slightly below market value, the tenants have a solid payment history and although they are month-to-month, they would be willing to sign long term leases at increased rental rates if asked.

The property already has positive cashflow and it is 50% vacant. A new owner would have several options — move in and operate his or her own business; bump the rents; renovate and resell; hold, rent and make a tidy monthly income; a combination of any of these; more.

So, where are the buyers for this deal? Will they be lined up on auction day for the opportunity to compete for this property? We’ll see. But smart buyers are buying now while property values are at their lowest.

Do you know….

• a homeowner looking to sell real estate fast
• a business owner liquidating assets
• a “gatherer” looking to sell years of collected items
• an executor, attorney or other person in charge of an estate
• some other person who could benefit from our live and online auction services

We’ve got a new program that rewards our valued clients for referring these types of sellers to us. Here is the scoop:

Registered users who refer anyone to us that results in the signing of an auction service agreement for real estate or personal property will get a $100 finders fee simply for making the introduction. Just make sure you tell your friend, family member or business associate to tell us that you referred them!

TRAC is preparing now for a Spring 2010 ballroom real estate auction in the Baltimore-DC corridor.

The ballroom auction format offers sellers who have one or just a few properties the opportunity to combine theirs with properties from other sellers. This creates more inventory to choose from, increasing buyer participation. Ballroom auctions also allow for joint marketing. So while a typical auction seller would pay for a full advertising budget (often a few thousand dollars), ballroom sellers pay only a modest fee.  When combined, these fees are used to create an extensive marketing campaign.

Online bidding will be available but this will surely be an event to attend in person if you can make it. Stay tuned for more details.

When I walk into a home we’re evaluating for a potential real estate auction, I often know immediately who is going to buy it. No, not the identity of the buyer (that only rarely occurs)… but the type of buyer.

Generally speaking, a property is either going to be purchased by an end-user (a homeowner for a residential property, a small business owner who is going to operate his or her business from a small commercial property, or some other buyer who is going to immediately occupy the property) or an investor (someone who is intends to hold the property for long or short term profit by renting it, rehabilitating it or otherwise).

The type and location of the property as well as its current condition are important factors in determining who the ultimate buyer will be. A end-user is probably not going to purchase a shell or a property in need of considerable repairs. An investor is probably not going to purchase a luxury home in turn-key condition in a neighborhood with few rental properties. You get the idea.

The end-user will, in evaluating the property as a “home”, consider such criteria as proximity to shopping, where the kids will play, the suitability of the layout of the home, future improvements, etc. Since the investor has no intention of residing in the property, she will have far less emotion involved in the process, allowing her to evaluate the financial aspects of the transaction using one or more of several commonly used formulas.  The “value” placed on the same property by the two groups will often differ considerably.

One of our most important jobs is determining the price at which a property will be considered for an auction campaign. Having the foresight to identify the buyer is an essential element of that process. We enroll only a small portion of the properties we evaluate (often because their owners value them differently than would-be buyers will), and sitting down with one of our associates to go over the details is usually an eye-opening experience for sellers, and something we highly recommend.

I have asked myself this important question, often on Saturday morning reading the local paper. Why must these auction firms deceive the buyers? I am referring to the almighty phrase “Absolute Auction sold to the highest bidder over $275,000″ or “Absolute over 140,000″. The price is not the point here; it’s the misrepresentation of the method. Is it absolute or not? As a CAI (Certified Auctioneer Institute) graduate, I know as well as all others who have graduated with this prestigious degree that it is unethical and illegal to have a price restriction on an absolute auction sale. Many times when I discuss absolute auctions with my clients, they cannot believe how candid I am when they ask, “can we have a minimum bid and advertise an Absolute Auction?” I always say the same thing… NO! An absolute auction has no minimum price, the property will be sold to the highest bidder regardless of price with no reserve.

Please don’t get me wrong, I love absolute real estate auction sales as long as the property and the seller qualify for the program. The seller must have the desire (and ability) to sell the property regardless of the price. This does not mean the property will sell for a fraction of its value. As a matter of fact, an absolute auction will more than likely bring more money than if it was sold with a reserve price attached to it. Absolute auctions generally sell 10+% higher than other types of sales because they are attended by many more bidders than if the property had a reserve. Generally if you are interested in the property offered for absolute auction you will attend the sale. After all if it is truly an absolute sale all the buyers/bidders know the property will change hands that day, the property is going to sell, and they want the opportunity to buy it at their price on that day.

Getting back to a remedy for my brother auction companies, it is simple: Stop doing the easy stuff and call the sale what it is. Instead of “ABSOLUTE AUCTION OF BEAUTIFUL ESTATE HOME to the highest bidder over $478,000″ , just say Beautiful Estate Home to be sold to the highest bidder over $478,000. PLEASE stop misusing Absolute, as I have worked and continue to work very hard to have it mean something.

Here are what a few well-known sources of reliable information have to say about the topic:

Absolute Auction: an auction where the property is to be sold to the highest bidder, with no required minimum amount. The seller is not allowed to bid personally, or through an agent. This is also called a no-reserve auction. Source: Websters.com

Absolute Auction: an Auction in which the property is sold to the highest bidder regardless of the amount of the winning bid. Source: Answer.com

Absolute Auction: type of auction where the highest bidder acquires the item being auctioned (irrespective of the bid amount) and where the item does not have a reserve price below which it will not be sold. Source: BusinessDictionary.com

Absolute Auction: an auction where the property is sold to the highest qualified bidder with no limiting conditions or amount. The seller may not bid personally or through an agent. Also known as an auction without reserve. That means there may not be any limiting conditions such as a minimum bid or hidden reserve price. The auctioneer may not bid for himself at an absolute auction, it is unethical and illegal. Source: NAA, National Auctioneers Association

Will the practice stop? Probably not until more of us speak up about it.

Paul Sobwick
Auctioneer, CAI, AARE, CES
Direct Line - (410) 707-6361