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How to Set Listings Up for Auction

Gina Boyleston
Here, an experienced sales associate and auctioneer tells how to take your clients’ listings to the auction block as an alternative to traditional listing arrangements.

My phone has been ringing off the hook for the last six to nine months with sales associates and sellers looking to offload their homes in a slowing real estate market. Where two years ago those dwellings were taking just a few weeks (or even days) to sell, the high inventories have left many of them languishing in the current market. As a result, the auction has become an increasingly popular way to market and sell those properties to qualified buyers.

But selling properties at auction isn’t as easy as it might sound. There are specific dynamics that must be in place, preliminary steps that should be taken when selecting an auction and tried-and-tested processes to follow when transferring real estate ownership. The first thing sellers must realize is that the home that doesn’t show well or entertain many offers while listed on the MLS probably won’t command the asking price at auction. On the other hand, desirable properties that are priced right will do well on the auction block in just about any market conditions.

Here are four steps that sales associates should take before putting their clients’ homes up for auction.

1. Be Choosy
There are far more real estate sales associates than auction companies in Florida, so narrowing down your choices won’t be difficult. The National Auctioneers Association, the world’s largest organization of professional auctioneers, offers a “Find an Auctioneer” link on its Web site, at www.auctioneers.org. (The site also features detailed information about real estate auctions, how they work, the advantages of using them and other valuable insights into the industry.)

When selecting an auctioneer, look at the company’s specialty areas and steer clear of those that don’t handle residential real estate. If possible, find an auctioneer who is also a Realtor® or who has experience in your field. The Florida Department of Business and Professional Regulation requires such professionals to hold an auctioneer’s license, so check to make sure the auctioneer you select is licensed. Also ask for referrals, and talk to other sales associates about their experiences selling homes through this particular auction company. If you don’t like what you hear, move on to the next candidate.
 
2. Ensure That There’s Equity
Sellers who have a large amount of equity in their homes have the best chance of walking away from the auction with smiles on their faces. Ideally, sellers should consider an auction only if their equity position is at least 20 percent of fair market value. Sellers who have 100 percent financing on a home and who lack any substantial equity, for example, probably won’t be good candidates for selling a home at auction.
If prospects tell me they bought their house six months ago for $400,000 with 100 percent financing, that they owe $400,000 on it and that they want to get $400,000 at the auction, I know it won’t be a good match.

That’s because homeowners with low equity will have very little wiggle room on the price they canaccept. Without that flexibility, it will be difficult to entertain offers from a group of buyers standing on the floor waving their paddles. If, however, you have a motivated seller (e.g., one settling an estate) with ample equity, the chances of a successful auction will be very high.
 
3. Get Sellers’ “Happy Number”
Prepare a list of questions to ask your seller before you put the home on the auction block. Good queries include these: What is your timeframe for selling? Is six months feasible, or do you need to sell right away? How long have you owned the home? How much equity do you have in your home? Are you willing to put out X number of dollars for upfront advertising costs? Do you have enough equity in your home that a good, reasonable offer of X amount will make you happy?

Next, find out if the seller has a realistic picture of what the home is worth (and what it might fetch at auction) by showing this seller recent sales of comparable homes in the area. Historically, homes at auction sell at 85 to 95 percent of their fair market value, although that number is getting harder to pinpoint because fair market values change so quickly these days. Regardless, you need to establish a minimum acceptable sales price that the auctioneer can work with and that makes the seller happy.
 
4. Brace for Upfront Costs
Unlike a typical listing, every auction has its own “auction marketing budget” that outlines exactly what type of advertising we’re going to do, where we’re going to do it and how often. In most situations, the seller pays the advertising costs, which can run several thousand dollars. Be sure that the auction company gives you a complete outline of the advertising promotion schedule, including newspapers, other publications, run dates, ad sizes, frequency, sign and brochure costs, and verification that all advertising has been placed and run accordingly.   

One way to reduce advertising costs is by finding an auctioneer who handles “multiple auctions.” In this scenario, the company sells 10, 20 or 30 properties at one time (instead of just one on a Saturday afternoon). The auction company will start advertising the event about six weeks out and expect each seller to share in the expense. This means sellers don’t have to pony up as much upfront money, and they also get a larger pool of auction goers on the day of the event.

As Florida’s real estate market continues its stabilization trend, expect to see more sales associates using individual and multiple auctions as an alternative to traditional selling methods. The best way to break in to auctions is to call a Florida-based auction company to find out how the process works, what’s required (e.g., you’ll usually have to relinquish the listing to the auctioneer and remove it from the MLS) and how successful the company has been at selling residential properties over the last six to 12 months. You may be surprised at what you find.
  
A Realtor, Gina Boyleston is president of Louis Boyleston Realty & Auction Inc. in Pensacola. An auctioneer of residential and commercial properties, as well as industrial and manufacturing facilities and warehouses, the family-owned and operated company has been in business since 1977. To find out more about the company, visit www.boylestonauctions.com.