On the Auction Block: Real estate auctions get popular

Although still a small part of all real estate transactions at less than 1 percent, according to the National Association of Realtors, sales by auction of residential real estate rose 12.5 percent in 2006 compared to the previous year and produced $16 billion in revenues, the National Association of Auctioneers reports.

NAR terms the real estate auction “an intense, accelerated real estate marketing process” and details its advantages on its Web site at www.realtor.org. (See box on page 25.)

Auctioneer Glen Yutzy, owner of Glenworth Auction & Realty in Fordland, said his business is growing nearly 25 percent annually and is now doing $25 million in annual sales. Yutzy said he conducts more than 200 auctions a year, and of those, probably 30 percent are for real estate exclusively.

“Twenty years ago the auction was more or less a last resort,” he said. “Now the market and the mindset have changed. People are in a hurry. And if (an auction) doesn’t bring what you want, you can always revert back to the real estate market.”

Larry Hughes is among the Realtors nationwide who offer both traditional realty and auctioneer services. Hughes, an independent auctioneer and Realtor with Murney Associates, Realtors in Springfield noted that Midwesterners are used to using Realtors, but sometimes need to turn to an auction for the speed of sale. “You do it all at once … and you close before 30 days,” he said.

Hughes noted that auctions are easier to book now, as people are becoming more knowledgeable about and accepting of them.

“If someone comes to me and wants to list a piece of property, and I feel it’s better to sell at auction, I’ll recommend that,” Hughes said. “If I feel I can do better at a private treaty sale as a Realtor, then I’ll do that. I can recommend which way to go.”

There’s no definitive answer as to which form of selling real estate – traditional listing or auction – is more lucrative.

“Every situation is unique, and I’ve seen it go both ways,” Hughes said. “If you get two people (at the auction) who want it, it’s going to go for a good price.”

Kevin Thompson, auctioneer and the owner of Thompson Auction Co. Inc., calls real estate auctions “the quickest way to liquidate real estate into hard cash.” Most buyers, he said, close within two weeks.

Thompson, who in 2001 was named State Champion Auctioneer at the Missouri State Fair, notes that another major advantage for sellers at auction is that they have no disclosure obligations regarding the property and aren’t required to do cosmetic work. “Buyers need to inspect the property in advance so they can make an educated purchase,” he said. “I would advise them to check out the home, whether they want to do it themselves or have a home inspector do it. You can even look at county records to see what the house has sold for.”

All three auctioneers say that buyers should be mindful that real estate auctions are almost always “as is” sales. Thompson said the only exception is when a builder gives a year’s warranty, which he says is typical with new houses.

Prospective sellers can arrange auctions simply by calling an auction agent, who will then schedule the auction and arrange for advertising and promotion. Hughes advertises his auctions on the Murney Web site at www.murney.com, in the Sunday newspaper auction section and in flyers distributed at convenience stores and farm stores. Thompson and Yutzy advertise in print media and on their own Web sites, Thompson at www.thompsonauction.com and Yutzy at www.glenworth.com.

“Advertising is the master of the industry,” Yutzy said, “If (a sale) is advertised good and promoted good, that property the day of the auction is going to bring the highest and best price that the market will allow. If the correct buyers are there, the house is sold.”

The compensation auctioneers receive for real estate auction sales varies nationally throughout the industry.

“Whatever the final sale price is, you tack the percentage onto it,” Thompson said. “It’s called the buyer’s premium. If the seller is paying us, we call it a commission. We’ll also pay another Realtor or broker if they bring us a buyer.”

Locally, Thompson said commissions are more popular. In the Ozarks, he said, commission ranges between 4 percent and 6 percent, and the buyer’s premium ranges between 6 percent and 10 percent.

Beginning in April, Thompson plans to start monthly real estate auction sales on the third Friday of each month. The sales will be held at 10 a.m. on-site, he said.

“People can call and consign their houses,” he said. “They’ll know that every 30 days we’ll have a sale.”

As public awareness of auctions in real estate grows, these local auctioneers are keeping busy growing their businesses. Yutzy’s company, for example, is building a new 11,000-square-foot building on U.S. Highway 60 between Rogersville and Fordland.

“This is our 25th year in the Rogersville area,” he said. “We’re in love with the business. I don’t ever want to do anything else.”

Real Estate Auctions

There are three types of real estate auctions.

1. The Absolute Auction: Also known as an auction without reserve, in an absolute auction, property is sold to the highest bidder regardless of price. This type is likely to generate higher participation.

2. The Minimum Bid Auction: With this type, the auctioneer will accept only bids that are at or above a published minimum price, which is stated in brochures and advertisements and announced again at the auction. This offer reduces the seller’s risk, but may limit interest from potential buyers.

3. The Reserve Auction: Also known as an auction subject to confirmation, in this scenario, the high bid is reduced, in effect, to an offer. A minimum bid is not published, and the seller reserves the right to accept or reject the highest bid within a specified time, which can range from immediately following the auction up to 72 hours after the auction concludes. A disadvantage of a reserve auction is that prospective buyers may not invest the time and expense of due diligence when there is no certainty they will be able to buy the property.

Source: National Association of Realtors

Real Estate Auction Benefits

Using auctions provides benefits for each party in a real estate transaction. Among them:

For the Seller

• Buyers come prepared to buy.

• Quick disposal reduces long-term carrying costs, such as taxes and maintenance.

• Exposes the property to a large number of pre-qualified prospects.

• Accelerates the sale.

• Creates buyer competition, which can drive up the price.

• The seller knows exactly when the property will sell.

• Eliminates numerous and unscheduled showings.

• Takes the seller out of the negotiation process.

• Ensures an aggressive marketing program that increases interest and visibility.

For the Buyer:

• The buyer knows the seller is committed to sell.

• In multiple-property auctions, the buyer sees many offerings in the same place at the same time.

• Buyers determine the purchase price.

• Eliminates long negotiation periods.

• Reduces time to purchase property.

• Purchasing and closing dates are known.

• Buyers know they are competing fairly and on the same terms as all other buyers.

• Buyers receive comprehensive information on property via due diligence packet.

For the Realtor:

• Generates a list of ready, qualified buyers.

• Offers clients and customers new selling and purchasing options.

• Increases revenue and market share.

• Property is sold within a relatively short period of time.

• Exposes the property to many potential purchasers.

• Referrals and return business.

• Agents can earn commissions as referring agent/broker, cooperating agent/broker or listing agent/broker.

Source: National Association of Realtors

Features Editor Maria Hoover contributed to this story.