Auctions - Where's the Innovation?

[Roebuck Auction]

Are there any auction houses out there bringing truly unique and different approaches to the way auctions are run in order to increase the participation and ultimately the price offered for properties?


Wow?what a great question, and one that I have been asked many times. Let me start by saying how pleased I am that you have taken the time to research the auction process and offer constructive criticism to a process that I am obviously a big fan of.

The quick answer is that there is not a quick answer to this question. I myself have wondered if there are better ways to do auctions than the traditional ?outcry? style that we are accustomed to. In my travels with the NAA (National Auctioneers Association), I have witnessed other auction methods including the Dutch method with which you are championing. This is most commonly used for items that are not of great value and in situations where the items need to be sold very quickly. If you think about it, there is only one bid and it is over. You lose the benefit of competitive bidding and the emotional aspect of buying real estate. There is also a psychological reason why this method is not well suited for real estate. While there is an emotional aspect to buying real estate, we are all well aware that there is an even bigger emotional aspect to selling real estate. In the Dutch method, the price is constantly dropping until someone bids. The falling price has a negative impact on a seller versus the outcry method where the price is being bid higher and higher.

The best example of the Dutch method can be seen at the Aalsmeer Flower Auction that takes place everyday in the Netherlands. If you get a chance, look it up on the web. It is a fascinating operation in a building roughly 846,000 square meters in size.

I have also been a part of sealed bid auctions and Japanese auctions. Sealed bid auctions are most commonly used in situations where either the seller or the buyers will want to maintain a level of confidentiality. You will see Japanese auctions many times on cruise ships that conduct art auctions.

The common theme among all the other auction types is that the item being sold is not unique, does not benefit from competitive bidding, and it usually does not invoke a level of emotion.

From real estate and fine art, to classic cars and collectibles, no other auction method has proven to be more successful at achieving a maximum price than a live ?outcry? style auction that fosters competitive bidding and is conducted by a professional auctioneer. Every time I have been asked why we do not use other auction methods, the question came from someone who did not want to compete against other bidders. In other words, they thought the price would go higher at an outcry auction.

I did feel that your comment about auction houses getting creative was somewhat belittling to our sellers. I know that was not your intention, but everyone should understand that the people who come to us consider auctions to be very creative and an exciting alternative to traditional real estate sales. In most cases, they have had enough of their realtor telling them that in order to attract a buyer they are going to have to lower their list price (yes, the same list price their realtor told them to list it at in the first place).

Also, I would like to address the part of your post that criticized the amount of buyers at auctions. At our recent auction at the Santa Rosa Beach Club, we had over 200 people in attendance and successfully sold and closed 12 of the 14 properties up for auction that day. How many more bidders did we need? What other process has produced that kind of crowd and contracts in this market? We had another auction earlier this year that had an estimated crowd of 900+. There is an assumption among some people that an auction is an auction and it doesn?t matter who conducts it, the result will be the same. This couldn?t be further from the truth. I have worked a long time to make auctions a more accepted form of selling real estate and to make the process more exciting and more professional. I invite anyone reading this response to stop by our office sometime and see first hand the effort, the professionalism and the thought we put into selling every one of our properties. We are constantly tweaking the process and trying new creative techniques to enhance the experience for our buyers and sellers. And as hard as we try, we are not successful 100% of the time. But I will defend our success rate and the prices we achieve against any other sales method?.auction or traditional.
I apologize for the long response, but I appreciate your post and the opportunity to respond.

 

[Smiling JOe]

Although I understand your point, I disagree with your statement that a Dutch auction eliminates the competition from the buyer pool. The competition comes in the event of seeing who can sit on their checkbook the longest. If you sit too long, you lose.

I also think that if the Dutch auction is noted as being helpful in getting quick sales, it should be the one most needed and most used right now. For potential bidders to make arrangements and travel plans to come to an auction, only to be informed during the auction that a property is being pulled, is doing a disservice to the buyers and sellers. After one or two occasions of that happening, buyers will no longer attend the auctions.

... everyone should understand that the people who come to us consider auctions to be very creative and an exciting alternative to traditional real estate sales. In most cases, they have had enough of their realtor telling them that in order to attract a buyer they are going to have to lower their list price (yes, the same list price their realtor told them to list it at in the first place).

Wow! Real estate values change very frequently. If the seller is still working with a price which he or she agreed to, six months after placing it on the market, the seller isn't recognizing that there are not buyers at that price. As a Realtor, I rarely get someone to agree to the start the pricing at the lower end of the pricing range which I give them. In this market, you have to start with an aggressively low price to make the sale, and I will add that if they started with the aggressively-lower price, they would be more likely to make the sale quickly, as the average listing receives the most interest within the first 21 days of it hitting the market. Many sellers are unwilling to jump ahead of the downward trending curb, until they decide to send the property to an auction. Time is money.

 

[poppy]

I also think that if the Dutch auction is noted as being helpful in getting quick sales, it should be the one most needed and most used right now. For potential bidders to make arrangements and travel plans to come to an auction, only to be informed during the auction that a property is being pulled, is doing a disservice to the buyers and sellers. After one or two occasions of that happening, buyers will no longer attend the auctions.

I have been to hundreds of auctions for both merchandise and real estate and IMO the English method is the only way to go for real estate. you should go to an auction with a price in mind but you will always question yourself. As we all know, an item is only worth what someone will pay for it, no more, no less. In The Dutch auction as the price drops near my target, I begin to wonder if I'm right. On a small item I think "so what, I want it", but real estate is a huge investment and with no other feed back from the crowd you start to think " hell, I might be too high", also in the Dutch auction the price is continually descending. From a sellers stand point I would want the price going in the other direction. With the the English method the bidders start where ever they want and it goes up from there. With active bidding it can get quite exciting and competitive. I have also seen where a property may not meet reserve, so the auctioneer will pause the action and consult the property owner and the bidder to see if the first will come down and second will go up to some happy agreement. If you can get a bidder in a dutch auction to reverse direction I'd like to see it.
You state that a property being pulled from the auction is a disservice to the buyers and sellers. This is not accurate, it is the seller who pulls his/her property, not the auctioneer. No one can be forced to sell. I have seen auctioneers get very upset about this because if it does not sell, they do not get paid.
I purchased my home here in sowal with the traditional method using a realtor. In the same month of the same year I paid $95,000 less than the identical home across the street, this was new construction so all was equal.
I made an offer and got lucky. I'm curious as to what would have happened at auction.
From my viewpoint both methods of selling are very effective with the auction method having the edge for speed and excitement.

 

[poppy]

Wow! Real estate values change very frequently. If the seller is still working with a price which he or she agreed to, six months after placing it on the market, the seller isn't recognizing that there are not buyers at that price. As a Realtor, I rarely get someone to agree to the start the pricing at the lower end of the pricing range which I give them. In this market, you have to start with an aggressively low price to make the sale, and I will add that if they started with the aggressively-lower price, they would be more likely to make the sale quickly, as the average listing receives the most interest within the first 21 days of it hitting the market. Many sellers are unwilling to jump ahead of the downward trending curb, until they decide to send the property to an auction. Time is money.

I was re-reading your post and I hadn't noticed before that you are a realtor.

Not being an auctioneer or a licensed real estate agent myself, I was curious about your statement concerning someone not agreeing to the pricing range you recommend. Are you saying you will sign a listing contract with a client knowing you will not sell their property at the price they want? I'm not trying to be critical, it's just that I don't understand. You state that time is money, if so, are you not wasting their time?

Can anyone explain if this is the norm for real estate sales?

 

[Smiling JOe]

I was re-reading your post and I hadn't noticed before that you are a realtor.

Not being an auctioneer or a licensed real estate agent myself, I was curious about your statement concerning someone not agreeing to the pricing range you recommend. Are you saying you will sign a listing contract with a client knowing you will not sell their property at the price they want? I'm not trying to be critical, it's just that I don't understand. You state that time is money, if so, are you not wasting their time?

Can anyone explain if this is the norm for real estate sales?

I am not stating that at all. I typically give a suggested price range of where I think they should price their property. What I said was that rarely do the sellers ever go with the lower end of my suggested price range, even after learning that pricing it on the lower end will typically gain more interest from buyers.

Thanks for asking. I don't mind walking away from listings which the seller won't realistically price the property.

 

[poppy]

I am not stating that at all. I typically give a suggested price range of where I think they should price their property. What I said was that rarely do the sellers ever go with the lower end of my suggested price range, even after learning that pricing it on the lower end will typically gain more interest from buyers.

Thanks for asking. I don't mind walking away from listings which the seller won't realistically price the property.

Thank you for the reply, we only learn by asking questions.

 

[Smiling JOe]

Absolutely.

 

[poppy]

IMO, I don't think phone and internet bids at auctions should be accepted. If you want the property, show up. The Gov't auctions are not done on the internet. You have to show up on the steps of the Court House to bid.

I was at the saturday Roebuck auction when three of the Pirates Bay units were sold to a phone bidder. I ran into the owners and they said they accepted the offer, so I think you have to allow phone bidders, why exclude buyers?

If you had a buyer sitting in front of you making an offer and a qualified buyer
phoned and made a higher offer would you accept it or tell them to get on a plane and make the offer in person, of course not.

 

[Smiling JOe]

I think they should be excluded unless it can be proven that they are a real person with real funds and interest in purchasing. Hell, we don't even know if anyone at all is actually on the phone, other than the auctioneer's rep. I guess for that matter, the auction company could plant "bidders" in the audience. I may be changing my position on the phone bidders.

 

[Joe Mammy]

I was at the saturday Roebuck auction when three of the Pirates Bay units were sold to a phone bidder. I ran into the owners and they said they accepted the offer, so I think you have to allow phone bidders, why exclude buyers?

We'll just keep an eye on these Pirates Bay units and see if they close.