MA COMMERCIAL REAL ESTATE RESOURCE GUIDE - Real Estate Auctions in the New Millenium

January 01, 2006

Justin J. Manning, CAI, AARE - President, JJ Manning Auctioneers
As seen in MA Commercial Real Estate Resource Guide 2006-2007
THE STIGMA:  Real Estate Auctions have historically been linked with a certain stigma.  Words like foreclosure, distress and bankruptcy were some of the things that came to mind when real estate auctions were discussed.  Thoughts of the bank taking someone's home or shutting down a business were the common perception.  However, over the past decade, non-distress sale of real estate at auction has become increasingly commonplace and the tides are turning.  The new generation is familiar with auctions through exposure to many different elements, including technology, the internet, high end art, charity auctions and especially, EBay.  Many corporations, estates, builders, government agencies, investors and individuals now see auctions as a viable tool to sell real property for fair market value.  Additionally, education and designations within the auction industry have brought the profession to a higher level, further enhancing the level of respect within the business community for many auctioneers.   Through positive results, forward thinkers and decision makers are seeing the benefit and value of these accelerated and contingency-free sales. Traditional listings for commercial and residential property are no longer viewed as the only way to move real estate in this new millennium.


HOT MARKET: In the past 3-4 years many real estate brokers have utilized and benefited from auction-related concepts.  Very low interest rates combined with an ultra-hot real estate market have prompted many "auction-like" scenarios for brokers on certain listings.  Commercial and Residential brokers announced their listing(s) and then immediately received numerous simultaneous offers (some even above asking price).  Essentially this became a "bidding war."  Then, they would bounce these offers back and forth between the interested parties, until the best and highest price or offer was reached.  That, ladies and gentlemen, is an auction! However, when the market changes, that luxury disappears for real estate brokers.  Auctioneers have the benefit of seeing this scenario in practically every sale we conduct.  Due to this fact, many real estate brokers choose to work in cooperation with auctioneers who specialize in saturation marketing.  These brokers understand that an auction can create that competitive atmosphere for their listings that is lacking when times are less than hot.


CORRECTION PERIOD: Some are calling this snapshot in time a "correction period" for the real estate market. What does this mean?  Whatever the future may hold, things are not the same as they were a year ago.  Properties are not selling as quickly.  Prices are coming down and negotiations are often stretched out too far for most people's patience.  The statistics in all of the media outlets on sales volume and prices for real estate are flat.  In certain regions, some people have grown so frustrated that they've opted to rent a property rather than keep it on the market.  No one can determine how long or how severe any change in the real estate market may be.


THE AUCTION:  In an auction scenario in a hot market, the time from initial listing to P&S is approximately 5-6 weeks.  In a cool market, the time from listing to P&S is still 5-6 weeks.   Regardless of the environment and economic factors, auctions consistently offer the same speedy turnaround.  A real estate auction is only an auction when you have a crowd of ready willing and able buyers.  How is that accomplished in a tougher environment?  The answer is marketing, marketing and more marketing.  The old saying, "It only takes two," can be true for an auction, but it's nice when it's ten or more.  A larger crowd and bidder pool is obviously preferable and is also a better representation of the true marketplace.  The marketing leading up to an auction generally takes 4 weeks and includes a scheduled preview of the real estate.  The marketing may include newspaper display ads, direct mail brochures, web advertising, signage, email press releases, property information packages and more.  It is specifically designed to reach the identified audience of buyers for that property.  An auctioneer's ultimate objective is to make sure that any and all interested parties are aware of the auction sale.  No rock can be left unturned.  At auction, there are many bids or "steps" that lead us to the last and highest bid.  Experienced auctioneers must make sure that no step is skipped, insuring full market value for the client auction day.


STATISTICS: According to research done by MORPACE International, for The National Auctioneers Association, gross Real Estate sales at auction in 2005 totaled $51.2 Billion Dollars.  They also note that real estate auctions were one of the most active of all auction categories in 2005.  Residential real estate sales showed an increase of 8.4 percent over 2004.  Land and agricultural real estate grew 7 percent and commercial real estate sales grew 4.9 percent.  This shows a trend of sellers who are embracing and accepting auctions as a valid method for selling their real estate assets.


WHY AUCTION: So, why are sellers choosing auctions to sell their real estate assets?  The number of benefits from selling real estate auction may surprise you. 


Speed & Planning:   A properly marketed, professionally conducted real estate auction is not a fire sale, it is an accelerated sale in a compressed time frame.  It requires the successful high bidder to place a significant deposit on the property and sign the P&S on auction day.  This equates to a closing rate usually above 95%.  This allows a seller to plan ahead because he knows when the property will close and when he will get paid.  Buyers are serious, often liquid and as of auction day, heavily invested in the transaction.


No "Offers":  One of the biggest roadblocks for negotiated, conventional sales is the offer process.  This period of time often drags on resulting in fruitless efforts for the broker and seller.  In an auction, there are no written offers.  Offers are in the form of verbal bids made at the auction sale.  Buyers go directly to P&S on auction day. 


Time Value of Money & Opportunity Cost:   When money is freed up, this allows for investment of that money.  Auctions turn the asset into cash very quickly.  This allows for immediate re-investment.  Quick gains and rare investment opportunities aren't always available.  What opportunity costs are you passing up by not considering the auction method of sale.