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.

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.

We evaluate hundreds of properties per month, so I can tell you this with certainty: unless you’ve made considerable home improvements, your home is worth LESS now than it was worth in 2006.

So, if you purchased real estate in 2005-2007 and you did so without putting much money into the deal, you are upside down. What does this mean, in a nutshell? It means that unless you plan to bring money to the table (or short your lender), you aren’t going to sell your property — traditionally or at auction. So live in it. Enjoy it. Rent it. Or walk away from it.

Anybody who tells you anything different has ulterior motives — like taking yours on as a traditional listing but planning a short-sale!

Not to discourage you from submitting a request for a property evaluation (we’re always happy to evaluate potential deals), but please consider this information when planning your future.

Local clerks need to read the code.

In a prior post I complained about the practice of certain local clerks taxing deeds based upon the assessed value rather than the consideration paid. As unfair as that seems — using an inflated, pre-bubble assessment to calculate transfer tax — at least it is predictable. Buyers and sellers know in advance what their closing costs will be. They can plan for it.

Some Maryland clerks are now making a mess of things and holding up recordings when they have no right to do so. They need to read the code and stay out of it. A deed contains a statement made under oath as to the consideration paid. If the code says deeds are to be taxed based upon consideration, that should be the end of the inquiry. However, within the past month I have had 2 Maryland clerks reject and/or hold up recordings, asking for a letter from the seller explaining why the property is being sold for $x when it is assessed at a higher amount. When pressed on the issue, the recording was permitted to pass through. This behavior is inappropriate, unacceptable and actionable.

Property values have plummeted. The “value” some foolish assessor placed on a parcel three years ago means nothing. We don’t care about the coffers being empty. Stay out of our real estate deals — put up another speed camera.