1. Introduction to Real Estate Auction
A program by the
National Association of REALTORS®

2. Goal of This Course
Help you increase your revenue by introducing auctions to clients and customers as a tool for selling and purchasing property

3. Table of Contents 1. Real Estate Auction: The Opportunity
2. Identifying Sellers and Properties
3. Proposal to Closing
4. Getting Started in Real Estate Auctions

4. Learning Objectives Define real estate auction
Discuss benefits of real estate auctions
Identify sellers, properties, and markets for auction
Explain how to establish alliances with auction firms

5. Who This Course Is Written For
Agents who want to introduce real estate auction to their sellers and buyers
This course is NOT intended to certify or accredit real estate professionals as auctioneers.

6. Real Estate Buyer’s Agent Council
Approved Elective for ABR® Designation
Successful completion of this course counts as elective for REBAC’s Accredited Buyer’s Representative (ABR®) designation.
For more info, contact:
Real Estate Buyer’s Agent Council

7. National Auctioneers Association
Pursuing Career as Auctioneer?
Successful completion of this course counts as 1st day of 6-day NAA’s Accredited Auctioneer Real Estate (AARE) designation.
For more info, contact:
National Auctioneers Association
, ext. 28

8. 1. Real Estate Auction: The Opportunity
Defining real estate auction
Discussing growth of this niche
Identifying benefits
Explaining how agents can work with auction firms

9. What Is Real Estate Auction?
Intense and accelerated real estate marketing process that involves the public sale of property through competitive bidding

10. What Is Real Estate Auction?
Effective way to:
Convert real property into cash
Turn unwanted property into liquid assets
Achieve a sale in a specified time frame

11. What Is Real Estate Auction?
Was typically regarded as sales method of last resort for residential properties in distress

12. What Is Real Estate Auction?
Auction beneficial for many types of real estate:
New-home construction
Luxury and vacation homes
Agricultural land (farms, ranches, and orchards)
Commercial real estate

13. Fast Growing Business Niche
Auctions are on the rise:
From 2003 to 2007, residential real estate auctions grew 46.6%.
Land and agricultural real estate grew 36.3%.
In 2007, real estate auction as a whole generated more than 58.4 billion dollars in sales.
Source: National Auctioneers Association

14. Benefits to Seller High seller holding costs are eliminated.
Seller sets terms and conditions.
Property sold at true market value
Seller knows when the property is expected to sell.

15. Benefits to Seller Reduced time to market and show property
Large number of pre-qualified buyers
Competition among buyers
Buyers make a firm decision about the property.

16. Benefits to Buyer Motivated seller
Reduced time to purchase property, incl. negotiations
No contingencies
Favorable financing possible

17. Benefits to Buyer Exciting method of purchase
Fairly and open competition
Buyers—not sellers, agents, or appraisers—determine property's fair market value.

18. Benefits to Agent Opportunity to earn commissions
Expanded services to sellers and buyers
Properties exposed to large pool of qualified buyers
Properties sold within short period of time
Referrals and repeat business

19. How Agents Can Work with Firms
Referring agent/broker refers a seller to auctioneer, then receives a referral fee.
Listing agent/broker markets property and represents seller during sale and closing.
Buyer's agent/broker registers buyer who buys property at auction and earns a commission.

20. 2. Identifying Sellers and Properties
Understanding sellers, properties, and market conditions for which real estate auctions are best suited
Applying the two-thirds rule

21. First Step in Auction Process
Analyze:
Seller
Property
Market Conditions

22. Analyzing the Seller Seller motivated? Property overmarketed?
Previous price "labeled" the property?
Why has property not sold?
Seller’s reputation?
If not an auction, what do you suggest?
Auction is a commitment and requires investment from the seller.

23. NOT Good Seller Candidates
Over-motivated
Legal issues, eg, lis pendens
Unrealistic expectations of the property value
Litigious
Unwilling to level with you
Multiple owners with differing goals

24. Good Seller Candidates
Have high holding costs
Need immediate cash
Are retiring
Partnership or marriage break-up
Moving out of the state
Want to liquidate an estate
Are auction minded
Listing about to expire

25. Good Seller Candidates
Never been listed
Already purchased another house
Know auction will bring true market price
Financial problems
Time sensitive—“just want it sold”
Can’t/don’t want to maintain property

26. Analyzing the Property
Zoning
Back taxes
Tax assessment
Equity and mortgage
Property condition

27. Good Properties for Auction
Owner has:
At least 25% equity
A lot of high carrying costs
Property is:
Unique
Vacant
Difficult to appraise

28. Analyzing Market Conditions
Market conditions represent buyer interest.
At time of listing, market condition must be considered.

29. Favorable Market Conditions
Dull market—too much product, some buyer interest
Seller’s market―high demand and a lot of competition
Emerging market—kick off sales program of new developments

30. Consider Auction for All Properties
Residential
Industrial
Agricultural
Apartment buildings
Shopping centers
Nursing homes
New housing developments

31. Consider Auction for All Properties
Property in good condition and desirable location usually sells.
Even property that needs rehab or construction can sell if there is positive demand for it.

32. Negative or No-Demand Properties
Cannot be given away
Examples are properties:
Where list price established the upper limit
Have been on the market for a long time

33. Two-Thirds Rule Used to analyze market, property, and seller
If two out of three are favorable, auction should be offered to seller as a sales option

34. Questions to Ask
Answering several questions helps determine if situation is auction candidate

35. 1. Seller’s Motivation
On a scale of 1 (low) to 10 (high), rate seller's motivation
Auction creates a sense of urgency; important that seller feel comfortable with this situation

36. 1. Seller’s Motivation Sellers more motivated when: Need quick cash
Must sell property to finance another
Under severe personal pressures
Have high holding costs
Have excess real estate

37. 2. Seller’s Debt-to-Equity Ratio
Estimate possible sales price, hard costs, auction expenses, mortgage, and other debts
Establishes how flexible seller will be in adjusting sales price

38. 3. Lender’s Position Type of mortgage and interest rate?
Mortgage amount more than property value?
Lender willing to release property for sale by auction?
Lender allow assumption of mortgage?

39. 4. Seller Financing Makes a purchase more attractive and affordable
Consult with an attorney
Also consider offering discounts to buyers who pay cash

40. 5. Property Condition
“As is, where is”—without warranties or contingencies
Price should be only open issue on auction day

41. As Is, Where Is
Property sold with all faults, as it is and where it is
Buy what you see and do not see
“As is, where is” does NOT mean caveat emptor. Full property disclosures are required by law.

42. 6. Demand Factors
If strong interest in a property type, better chance of achieving a good sales price. For example:
Last view lot in a prestigious subdivision
Prime highway location in busiest commercial area of town

43. Case Studies: Two-Thirds Rule
Read case study.
Analyze seller, property, and market.
Identify whether seller, property, and market are positive (+) or negative (-) candidates for auction.
Apply two-thirds rule.
List advantages and disadvantages of selling by auction.
Answer question "Would you recommend auction for this case study?" and explain why.

44. Case Study 1: Estate Sale
Jan is moving into a nursing home.
Husband died 5 years ago, and she has not been able to maintain 125-year-old house and 8 acres of land.
Children need to sell estate to pay for nursing home.
Property is located 12 miles outside town.
Real estate market is soft.
Neighbors have expressed interest in property.

45. Case Study 1: Estate Sale
(+) (-)
Seller
Property
Market   
                 

46. Case Study 1: Estate Sale
Advantages
Disadvantages

47. Case Study 1: Estate Sale
Would you recommend an auction for this situation?
 
Yes No
Why?

48. Case Study 2: Business Loss
Shanes own a home in NM and an antique business in CA.
Only have 6 weeks to sell home
Adobe-style house in historic part of town.
Property appraised at $450K. Equity is 40%.

49. Case Study 2: Business Loss
(+) (-)
Seller
Property
Market   
                 

50. Case Study 2: Business Loss
Advantages
Disadvantages

51. Case Study 2: Business Loss
Would you recommend an auction for this situation?
 
Yes No
Why?

52. Case Study 3: Strip Mall Been on the market for over 5 months
Owner cannot keep up with costs of managing property.
Owner has 25% equity.
Four out of six storefronts still under 5-year leases.

53. Case Study 3: Strip Mall
(+) (-)
Seller
Property
Market   
                 

54. Case Study 3: Strip Mall
Advantages
Disadvantages

55. Case Study 3: Strip Mall
Would you recommend an auction for this situation?
 
Yes No
Why?

56. 3. Proposal to Closing
Understanding components of auction proposal and listing agreement
Differentiating between types of auction
Discussing tasks involved in marketing and conducting property inspection

57. Proposal Components Auction schedule Recommended type of auction
Advertising and marketing budget (paid by seller upfront)
Agreed-upon terms by seller and broker
Name of recipient of earnest money
Length of listing agreement
Broker/auction firm commission information

58. The Listing Agreement Terms of sale Broker commission
Date/ time of auction
Earnest money/recipient
Names of listing broker
Advertising/marketing expenses
Auction location (not mandatory)
Proof of a good and marketable title
Length of listing (60-90 days)
Escrow fees and payer of those expenses

59. Three Types of Auctions
Absolute auction
Minimum bid auction
Reserve auction

60. Absolute Auction Also known as auction without reserve No minimum bid
Property sold to highest bidder, regardless of price
Advantage: More buyers, more participation and excitement
Disadvantage: No safety net for seller

61. Minimum Bid Auction Also known as minimum published bid
Minimum bid pre-determined by auction firm and seller
When bidding reaches minimum amount, property sold “absolute”
Advantage: Safety net for seller
Disadvantage: Limits number of interested buyers

62. Reserve Auction
Seller reserves right to accept or reject highest bid within a specified time period.
Time period may be immediately after auction to 72 hours after close.
Advantage: Seller not obligated to accept bid
Disadvantage: No guarantee to buyers that seller will accept bid

63. Other Types of Auctions
Sealed bid
Dutch/high-low
Multi-par, which allows bidding on one parcel or combination of parcels

64. Online Bidding Continues to grow
Today’s buyers more experienced with electronic bidding
Online bidding will become more prominent in real estate auction

65. Online Bidding Falls into two categories:
Static―Sale happens at one point with one reporting medium
Dynamic―Bids simultaneously reported to all bidding locations

66. Problems of Online Bidding
Deposit requirements
Registration procedures
Disclosure items
Purchase contract execution
Licensing requirements

67. Purchase and Sale Agreement
No contingencies
Agreement made available at auction
Major terms read on auction day
"As is, where is"

68. Progress Reports Put system in place for monitoring marketing
Communicate to seller
Frequency determined by two parties

69. Bidder’s Packet
Auction firm packages all property information in bidder's packet and distributes to interested buyers

70. Marketing Costs Most cases, seller is responsible upfront
Cover concentrated promotional/advertising effort
Illustrate seller’s commitment

71. Marketing Budget Varies between 1%–10% of sale price. Budget based on:
Quantity and type of property sold
Number of staff required
Local, regional, or national marketing needs

72. Marketing Tasks Promotion Brochures and property information packets
TV, radio, and newspaper ads
Media planning and public relations
Preparing signs
Scheduling
Direct mailings/ campaigns
Property inspections and pre-auction seminars

73. Property Inspection Auction staff: Registers all attendees
Presents brochures
Provides bidder packets
Answers questions
Monitors interest and preparedness of buyers
Communicates buyers’ interest to seller

74. Buyer’s Financial Requirements
Earnest money, usually a non-refundable deposit
Lender commitment and/or pre-qualification to register
Buyer’s premium is amount paid by buyer to cover seller’s marketing expenses or auctioneer’s fee

75. Auction Strategy Based on results of marketing plan
Response from market
Firm plans needed adjustments

76. Closing Similar to closing in negotiated sale
Documents vary from state to state
Attorney or title company representative usually attends closing
Earnest money can be held in escrow account until transaction closed

77. Split Commission Common for brokers and auction firms
Must be included in listing agreement
Licensed broker, not agent, accepts a split commission from auction firm

78. Auction Process in Review
Analyze property, seller and market
Obtain property information and complete due diligence
Develop marketing strategy
List property for auction
Set sale terms and conditions
Prepare sales contract with terms and conditions

79. Auction Process in Review
7. Monitor marketing results and communicate to seller
8. Compile and package property information
9. Prepare real estate broker agreements
10. Begin marketing property
11. Hold property inspections and pre-auction seminar(s), if necessary

80. Auction Process in Review
12. Pre-qualify buyers
13. Develop auction day strategy
14. Sell property on auction day
15. Close sale
16. Pay commissions

81. 4. Getting Started in Real Estate Auctions
Finding real estate auction properties and firms
Working with real estate auction firms

82. Steps Review state laws specific to real estate auction
Understand participation methods, responsibilities, and forms used
Select real estate auction firms
Attend auctions

83. Step 1: Review State Laws Specific to Auction
Laws that pertain to selling real estate by auction
Auction licensing requirements
How to obtain education
Members of the National Auctioneers Association may check state license laws at

84. Step 2: Understand Methods of Participation, Responsibilities, and Forms Used
Referring agent/broker
Listing agent/broker
Buyer's agent/broker

85. Referring Agent Responsibilities
Help analyze needs, property, and market
Refer seller to auction firm
Cancel previous listing
Send notice to MLS
Collect referral fee

86. REALTOR® Code of Ethics Standard of Practice 16-4
REALTORS® shall not solicit a listing which is currently listed exclusively with another broker. However, if the listing broker, when asked by the REALTOR®, refuses to disclose the expiration date and nature of such listing; i.e., an exclusive right to sell, an exclusive agency, open listing, or other form of contractual agreement between the listing broker and the client, the REALTOR® may contact the owner to secure such information and may discuss the terms upon which the REALTOR® might take a future listing or, alternatively, may take a listing to become effective upon expiration of any existing exclusive listing. (Amended 1/94)

87. REALTOR® Code of Ethics Standard of Practice 16-6
When REALTORS® are contacted by the client of another REALTOR® regarding the creation of an exclusive relationship to provide the same type of service, and REALTORS® have not directly or indirectly initiated such discussions, they may discuss the terms upon which they might enter into a future agreement or, alternatively, may enter into an agreement which becomes effective upon expiration of any existing exclusive agreement. (Amended 1/98)

88. REALTOR® Code of Ethics Standard of Practice 16-3
Article 16 does not preclude REALTORS® from contacting the client of another broker for the purpose of offering to provide, or entering into a contract to provide, a different type of real estate service unrelated to the type of service currently being provided (e.g., property management as opposed to brokerage) or from offering the same type of service for property not subject to other brokers’ exclusive agreements. However, information received through a Multiple Listing Service or any other offer of cooperation may not be used to target clients of other REALTORS® to whom such offers to provide services may be made. (Amended 1/04)

89. Listing Agent Responsibilities—Before Auction Day
Providing lead
Canceling previous listing
Sending notice to MLS
Providing fact sheet on the property
Performing market analysis
Providing local licensing information

90. Listing Agent Responsibilities—Before Auction Day
Completing due diligence
Conducting property inspections
Obtaining signs, photos, and keys
Getting bids for maintenance and prop mgmt
Assisting bidders with pre-qualification process
Providing feedback to seller

91. Listing Agent Responsibilities
On auction day:
Accompany successful bidder to sign the contract
After auction day:
Help buyers with post-auction inspections, insurance, financing, etc.
Assist in pre-closing events
Attend closing

92. Listing Agent Responsibilities
Forms used:
Listing agreement between the real estate broker, auctioneer, and seller
Auction contract to supersede listing agreement
Pre-auction agreement outlining responsibilities of each party
Special auction sales contract and addenda
Prospect registration form
Bidder's packet

93. Buyer’s Agent/Broker Responsibilities
Primary responsibility is finding auction inventory:
lists
Web sites
Newspapers

94. Web Sites to Research in Addition to Local MLS
REALTOR.com
RLIland.net
Auctioneers.org
NAArealestateauctions.com
realtybid.com
foreclosure.com and foreclosures.com
Landandfarm.com
Landbook.com
Tranzon.com
Marknetalliance.com

95. Buyer’s Agent/Broker Responsibilities
Showing auction inventory to prospects
Reading the property information package or bidder's packet
Helping prospects determine market value of property prior to sale
Registering bidder prior to auction
Assisting bidder with choices and auction strategy

96. Buyers Need to Provide the Following at Auction:
Good-faith deposit
Personal check
Letter of guarantee
Identification

97. Forms for Buyer’s Agents
Buyer registration for open houses
Bidder registration for pre-auction
Broker registration day of the auction
Broker memorandum as part of the auction sales contract

98. Buyer’s Agent Compensation
Established in writing by auction firm in advance of auction
Buyer's agents need to determine if commission is paid on bid price, bid price plus buyer's premium, or some other amount.

99. Step 3: Select Real Estate Auction Firms
Auction firm should:
Be a REALTOR® firm if selling real estate
Specialize in real estate auctions
Have track record in auction business
Be staffed with persons with professional designations

100. Step 3: Select Real Estate Auction Firms
Auction firm should:
Have staff for research, marketing, and public relations
Provide references
Established and financially secure
Explain company charges and services
Exhibit familiarity with market

101. Step 3: Select Real Estate Auction Firms
Auctioneer should:
Have experience selling similar properties
Be able to tell you how many, what type and what price properties he or she has sold
Be able to explain percentage of units sold that have actually closed

102. All Real Estate Professionals Should Ask
Offering broker participation?
Offering a referral fee or commission?
What are contingencies and what disclosure documents is seller providing?
Will sale be absolute or will seller have right to reject bid?

103. All Real Estate Professionals Should Ask
Type of deposit required of buyers?
Is property as is? If so, what representations re condition, title, etc.?
Closing period?
What else is expected of the buyer or seller in the agreement?

104. Buyer’s Reps Should Ask
What are registration requirements for a buyer's agent?
Is it necessary to have registration form signed by buyer in advance?
Is a pre-bid necessary?
Should I attend auction with my buyer?

105. 4. Attend Auctions
Is sales contract available for review?
How easy is registration process?
Do staff stimulate maximum bidding potential?
Can bidders understand cadence of auctioneer?
Does firm provide financial or pre-qualification services to bidders?

106. 4. Attend Auctions
Environment clean? Décor pleasant? Restrooms available? Food and beverages provided?
Quality photos, slides, or video of the property used during the auction?
Auction recorded?

107. Thank you for your participation!
Introduction to
Real Estate Auction
Thank you for your participation!