Auctions are a vibrant part of the national economy. We know them as an exciting and efficient way to liquidate valuables, furniture, antiques and art. Whether it’s a live event featuring an attentive audience wielding numbered placards or an online sale in which bidders race a ticking clock, sellers can often expect to walk away with cash and buyers experience the euphoria of outbidding their competitors.
Real estate auctions, however, sometimes have unpleasant associations for buyers and sellers. The idea of using an auction to sell a home may conjure up images of Dust Bowl farms taken over and sold by lenders during the 1930s, or of the foreclosure crisis that exacerbated the housing market crash that stretched into the 2010s.
While distressed properties are part of the auction scene, they are far from the only homes sold that way. According to the National Association of Realtors, the majority of real estate auctions do not take place due to financial distress. Sellers who choose to sell via auction are typically seeking a fast, cost-effective way to get the best price possible for their homes.
“Probably the biggest distinction with an auction is that there’s a date that’s certain for a sale,” said Rick Levin, president of Rick Levin & Associates, an auction company based in Chicago. “Instead of just dragging out for weeks, months or years, the sale can occur at a date that the seller chooses. That really frees the seller up to make that determination when they want to sell their property.”
Toni Itkin of Coldwell Banker Residential Brokers in Buckhead said that auction sales in the Atlanta area tend to be luxury homes or properties with unique features, like an equestrian property developed on land where a housing development had failed. Itkin knows of just such a case. Though Itkin wasn’t the listing agent on the sale, it made an impression on her.
“Some of the infrastructure was already in, like the streets and pavement. It’s a little quirky, and finding the right buyer for that wasn’t easy. It had a custom-built home that was very narrow, but they did auction it off successfully.”
Agents and auctions
Real estate professionals are often an integral part of property auctions, whether they take place at live events or exclusively online. By working with auctioneers, agents can expand their business and better serve their clients by providing them with a quick and profitable route to a sale.
Agents may be reluctant to turn to an auction company out of concern that they will be cut out of a sale or that the auctioneers are their competitors. Trayor Lesnock, president and founder of Platinum Luxury Auctions, said that agents and brokers play key roles in nearly all of his company’s transactions. One of his company’s challenges is convincing the real estate industry at large that it’s a collaborative relationship, rather than a competitive one.
“For almost every transaction we do—I’m talking 97 percent or above—we are doing the transaction in cooperation with the existing listing agent or broker,” Lesnock said. “In other cases, we actually go ahead and bring one on, if one’s not there, to be our market partner and also to take care of certain licensure and legalities that need to be covered in a given county or state.”
Lesnock noted that he sometimes hears agents warn clients away from auctions because they see the buyer’s premium as an additional cost, but in general the premium functions as a way to pay agent commissions, closing costs and other fees seen in a traditional transaction.
Itkin advised agents to involve their broker in their auction transactions to ensure that they are protected throughout the process.
“The brokerage can read the contract that is being presented, and sometimes they’ll have to go through the legal department, because this is a very unusual situation for most,” Itkin said. “Have it written explicitly that this is what the listing agent will receive for the listing and this is what the broker receives. Have it in writing and signed and agreed to by all parties, including the auction house, so that no matter what the sale price is, they are protected. That has to be a very upfront discussion.”
Concierge Auctions works to educate agents about the auction experience and how they can make money through auctions. Agents play a vital role in the process through their knowledge and networks of connections.
“A lot of agents, if they don’t know us, consider us competition and don’t understand that we always protect our agent commission,” said Laura Brady, founder and president of Concierge Auctions. “While we have real estate brokerage licensure in most of the markets that we do business in, we don’t operate as the broker. We always rely on them for their local market expertise.”
The nuts and bolts of auctions
The dated notion that auctions are associated with tragedy or misfortune is perhaps the greatest hurdle agents and sellers have to overcome. In fact, there are many reasons a buyer may want to sell a property at auction. Luxury homeowners in particular often have properties in the multimillion-dollar range that are hard to move through conventional channels. Those homes could sit vacant for years while waiting for a sale to occur, and extended vacancy may lead to price drops.
“Auctions in general are for those very unique properties,” Itkin said. “Even if it’s unique, it all boils down to price. I think a lot of people are intrigued with the mystique of an auction and the idea that they might be able to pick something up for a bargain.”
But what if the property is purchased at a price far below its value or below what the owner considers an acceptable price?
Thankfully, there are multiple scenarios that can help homeowners navigate such concerns—starting with knowing which type of auction makes the most sense for a given property. Homes are typically sold at three types of auctions: minimum bid, reserve or absolute (auction without reserve).
In a minimum bid auction, a threshold price is established. If no one bids at that price, the sale does not take place. Reserve bid auctions function in much the same way: The high bid functions as a purchase offer, though the seller has the option of rejecting all bids. The seller has to decide whether to accept or turn down bids within an established time frame, often 72 hours.
An absolute auction is an auction in its purest form. In these auctions, the property is going to sell as long as someone places a bid. While there’s a danger that a home may sell for much less than it’s worth, Levin noted that these types of sales often bring the most interest and the highest prices.
“Some sellers get concerned about doing that, but it brings the highest number of bidders because buyers know that there will be a sale for sure,” Levin said. “If there is going to be a sale for sure, all the buyers want to get there so they can determine the price they want to pay. If all the buyers are there, it’s more likely that the price achieved will be the highest price available to the seller.”
Itkin recommends that sellers’ agents take the opposite approach and opt for a reserve bid auction, since this way, the seller potentially generates some hype and excitement around the auction while guaranteeing that an acceptable price is met. If the timing isn’t right for auctioning the property, the expected bidding war might not materialize to help drive up the price. A no reserve auction sale Itkin was involved in went badly for her seller when bidders did not become competitive.
“[a property] usually goes for what the market value is or below market value,” Itkin said of no reserve auctions. “In my case, the seller went with the advice of going no reserve and was very well informed by the company that it can go either way, but they really pumped him up that about the bidding war. And then they got nowhere close to what they indicated it would get.”
Buyers can benefit greatly from auctions. Brady said her company works hard to ensure that purchasers have access to quality homes and that sellers are sincere in their intentions. Buyers also don’t have to negotiate a price because the highest bid stands.
“For buyers, that transaction is a very easy process,” Brady said. “The buyers who come to our auctions know that we work very hard to curate the properties that are in our marketplace. Properties that are listed for sale on our site have gone through a very strict vetting process. So when the buyers come forward, they know that it’s a motivated, realistic seller, and that it’s good merchandise.”
The technological shift
The ever-evolving nature of technology touches auctions, too. Many auctions are now held online. Some auction companies handle properties that are almost exclusively targeted toward companies that purchase homes directly from sellers and then put them back on the market without involving an agent in the process.
Levin’s company offers a model that combines real-time sales with an online auction component to bring in iBuyers. In this hybrid model, a live auction takes place that iBuyers can watch online as it occurs. This allows them to see the bids that people in the audience are placing and they can enter their own bids. With both audiences bidding, the seller can often get a better price than if the auction was exclusively online or strictly a live event.
Concierge Auctions features a digital component in all of the company’s auctions. Brady said the company developed an online platform in 2010, but it was retired soon after its introduction because there weren’t enough buyers interested in bidding online at the time. The company launched a new incarnation of its bidding software in 2015 that proved more successful, partially due its mobile component.
“Within the first year of us launching it in 2015, we thought maybe half of our auctions that year would be conducted online, and the other half would be live auctions,” Brady said. “The public acceptance of it in 2015 was so undeniable that that year we had 80 percent of our auctions conducted digitally only. So now 100 percent of our auctions have a digital component.”
That doesn’t mean the live auction is going anywhere.
“I still love live auctions,” Levin said. “But internet auctions and that technology have really expanded the use of residential auctions. Because more and more people are going online and searching for their real estate needs that way, more people are likely to see it. When they see it, that might be the right time for them to want to buy it.”