Auction Services for Real Estate Brokers
“The majority of auctions today don’t result from foreclosure of distress situations, but rather are the result of a seller choosing a cost-effective, accelerate method to sell a property.” National Association of Realtors®
A Multiple Offer Scenario
You have multiple offers on a property. This is a great situation. Congratulations! You now have an impromptu auction – sort of. You see, each offer comes in with different terms. Let’s consider three offers. The highest offer comes in with contingencies for the sale of the buyer’s current residence, financing, and inspections, and a $500 binder. The next highest offer just comes in with contingencies for financing and inspections, and a $1,000 binder. But the lowest offer comes in as a Cash offer, As-Is, with absolutely no contingencies, a $10,000 binder, and a closing within 30 days. How do you explain these offers to your seller? What advice do you give?
Now let’s look at a Real Estate Auction.
On this page we hope to answer three important questions for real estate brokers:
- What are real estate auctions?
- Why should you participate in real estate auctions?
- How can you participate in real estate auctions?
For many years there has been a myth in the real estate profession that auctions are only for distressed properties and foreclosures. Likewise, there is an old adage in the auction profession that says that the easiest way to mess up a real estate auction is to allow traditional real estate brokers to participate. As you can see, there has long been a division between the auction profession and other real estate professionals. The truth is, real estate auctions work, and they work best if we all work together. More and more sellers and buyers are turning to auctions as their first choice for selling or buying property. This is probably why you are here looking for ways that you can participate.
This is a brief overview of real estate auctions. For more in-depth information, check out the great wealth of information provided by the National Association of Realtors® by clicking here.
Simply put, a real estate auction is an accelerated marketing process that has been proven to be an effective method of selling real estate. An auction whether online, by public outcry, or a combination of public outcry and simultaneous online bidding creates an environment of competition among pre-qualified buyers that drives the price of a property up to true market value. Auction prices can exceed the price of a negotiated sale. Real estate auctions are effective in all market conditions. Further, in cases where there are multiple properties, or multiple parcels, techniques such as “High Bidder’s Choice” and “Multi-par” can achieve better results than negotiating each property or parcel separately. Keep in mind that although most properties are salable at auction, not all properties are suitable for auction, and not all sellers are in a suitable situation to have their property auctioned. Click here for information on determining if a seller or property is a good candidate for an auction.
Auctions create a Win-Win-Win situation. They are a win for sellers, a win for buyers, and a win for real estate professionals. With more and more real estate auctions being conducted, both live and online, and more and more sellers and buyers turning to the auction method to sell or purchase real estate, it is only natural that brokers should want to learn to participate in this innovative sales technique.
Check out the following benefits:
Benefits to the Seller
- Accelerated Sale – This reduces the costs associated with holding a property such as: maintenance, insurance, mortgage payments, and taxes.
- Buyers are ready to buy – The property is exposed to a large number of pre-qualified potential buyers.
- Pre-approval for financing – sales are not contingent upon financing. Buyers must be pre-approved by their financial institution prior to bidding.
- Competitive Bidding – Buyers must compete with each other to purchase the property, assuring that the property will be sold at true market value. Auction prices can exceed the price of a negotiated sale.
- The seller knows exactly when they will receive an offer for their property, and when the sale should close.
- Eliminates having to be prepared at all times for showings.
- The seller establishes the terms of Contract for Sale and Purchase – Typically there are no contingencies. The only negotiation is the sales price.
- Prices go up, not down.
- Ensures an aggressive marketing program that increases interest and visibility
- Properties are typically sold “As-Is” – Buyer inspections are completed prior to bidding. Typically, sales are not contingent upon inspections.
Benefits to the Buyer
- Competitive Bidding assures that the property will be purchased at fair market value.
- The buyer is assured that if they are the high bidder, and their bid meets or exceeds the reserve (if any), that the property will sell.
- The only thing the buyer has to negotiate is the price. They are competing on the same terms as every other potential buyer.
- Contract and Closing Dates are known prior to bidding. There are no long negotiations, reducing the time associated with purchasing property.
- The due diligence packet gives detailed information regarding the property. In many cases, if a buyer wants to arrange for an inspection, this may be done prior to bidding.
Benefits to the Broker
- A real estate auction generates a list of pre-approved buyers who are ready to purchase. Only one buyer can purchase the auction property. Other buyers may then be shown similar listings.
- Allows the broker to create a unique market niche – increasing revenue and market share by offering clients or customers new ways to sell or purchase real estate, and enhances your image as a full service real estate broker.
- Competitive Bidding assures that the property will sell at true market value, which can exceed the price of a negotiated sale.
- The broker can tell the seller the date when they will receive an offer, and the date of closing.
- Contracts for Sale and Purchase typically have few or no contingencies at a real estate auction.
- Accelerated Marketing exposes the property to many potential purchasers. The property may not be perfect for all of them. If you are the listing broker, the potential purchasers for whom the property isn’t a good match, may be interested in seeing other listings. Therefore all of your listings benefit from the marketing associated with the auction.
- Typically only one party can purchase the property at auction. If you are the listing broker, all pre-qualified potential purchasers who are not brought to the auction by another broker or their agent may be marketed other listings.
- Auctions generate referral leads and return customers.
- Brokers and their Agents can earn commissions in three ways:
- As referring Broker or Agent,
- As a listing Broker or Agent, or
- As a cooperating Broker or Agent.
How Can You Participate in Real Estate Auctions?
As stated above, there are three ways to earn commissions with real estate auctions. First, you can simply refer cases to a real estate auctioneer and receive a referral fee. Second, you can be the listing broker for a real estate auction, and third you can be the cooperating broker who brings a buyer to a real estate auction. At AARON JOSEPH, we can help you with each of these.
Broker Referral Fee
As a broker, this is the simplest method to earn a fee. At AARON JOSEPH, we are happy to pay referral fees. If you are a broker who is out of the area, this may be a great option for you.
Listing Broker Commission
If you are a broker in the area where the property is located this might be a better option for you. As a listing broker, AARON JOSEPH is prepared work as your right hand conducting auctions for you. This allows you to expand the line of services you offer, and therefore expand your market. There are several advantages to this, including:
- Your brand is prominently displayed throughout the sales process. After all, it is your sale.
- We co-broker with you for the auction sale only. Your exclusive listing agreement is amended and agreed to by you, the seller, and us, allowing for us to conduct the auction. In the rare event that the property does not sell at auction your listing agreement remains in place.
- Any buyers brought to the sale by marketing you or the seller provides, are your customers. Remember, not all potential buyers will be a high bidder. These other ready, willing, and able buyers can be shown other listings after the auction.
- You will receive a substantial commission, possibly the same commission you would have received if you had sold the property through a negotiated sale under your listing contract.
- You will become known as a broker who provides auction services. This will bring referrals, and repeat customers.
Cooperating Broker Commission
As a cooperating broker, you receive a commission split from the listing broker, whether that is AARON JOSEPH or another Listing Broker for securing and representing the buyer of the property. This split is similar to the split you would receive through cooperating in your local MLS. Always check the auction Terms & Conditions for information regarding Cooperating Broker registration. In many cases, this must be completed and approved prior to the auction.