In the past few months I have had the opportunity to interact with a couple of the larger auction companies here in Kansas City. And my question is, are auctions a great way to add to your real estate investment portfolio?
So I thought I would ask the experts. Today we are going to hear from Robert Mayo of Mayo Auction & Realty as well as Greg Duncan of Cates Auction & Realty. I want to thank both for taking the time to answer the following questions while not knowing how the other would answer. I hope you, the reader, will benefit.
M: Auctions are an effective vehicle to buy and sell real estate. The primary reason is that the seller knows when the property will sell, and the buyer has the opportunity to eliminate negotiating and buy at market value.
C: Simply stated, auctions let sellers sell on their terms and let buyers buy at their price. Auctions are the most efficient method available for buying and selling homes, land, and commercial property. They are simple, quick, and transparent.
What do you think the biggest misconception of an auction house is?
C: Whatever a person’s misconception might be, somewhere there is an auction company that will match that expectation. Since we are a professional firm that specializes exclusively in real estate, some people are surprised that we don’t operate a gallery or accept consignments of personal property. Some are surprised that we are selling millions of dollars of real estate each year. Others are surprised that most of our properties are not “in distress” and that many of them are first time to market. Some people are still surprised to find that we aren’t sporting huge belt buckles and cowboy hats!
M: The biggest misconception of a real estate auction is that the buyer is unable to obtain financing. Although most auction transactions are conducted without contingency, including but not limited to financing, most professional auction companies will allow a 30 day window for closing. This provides ample opportunity for the buyer to utilize financing.
Is a real estate investor likely to be the high bidder at an auction or the prospective home owner?
M: This really depends on the property and the terms of the auction. In many cases there are both investors and owner occupants participating at real estate auctions. At the end of the day it is very similar to the traditional transaction in that every property has a potential pool of buyers. Our goal is to get that pool of buyers involved in the auction. In regards to who the high bidder is, it just depends on who wants it more.
C: Yes. Real estate auctions are attractive to investors who are selling as well as those who are buying. We regularly work with both. Sellers appreciate the speed of the transaction, the ability to plan around the sale, minimizing carrying costs once they have decided to sell, selling “as is”, and avoiding the complications of contingent offers. Buyers like working with motivated sellers and many follow auctions watching for certain types of properties to come up or looking for certain price ranges.
How involved are real estate investors in the auctions you hold?
C: Very. Many investors are on our email and mailing lists. Many are regulars at our open houses and our Auction Showcase events (where multiple properties are sold gallery style).
M: Real estate investors are involved in most of the auctions we conduct.
What piece of advice would you give to an experienced real estate investor looking to utilize auctions as a source for either acquiring or liquidating an income property?
M: In regards to buying, my advice would be to use the same tools that you currently use to evaluate an income producing property. I would also recommend that they do all of their due diligence prior to the auction and come prepared to bid what the property is worth to them.
In regards to selling, it is important for the property owner to choose a method that will meet their specific needs. It is also important to evaluate the reputation of the company that they will be choosing and to make sure that they have a clear understanding of the auction marketing plan from beginning to end.
C: Understand the market in which you want to operate. Auctions are an excellent way to buy and sell real estate, but they don’t ignore basic market realities. Examine your goals. For every potential deal, be sure you know what matters most to you and what matters least. Ask questions of the auction company. Be certain they are experienced in the kind of real estate transaction you are considering and that they have a full professional staff to support the process.
C: Yes. We work closely with other brokerages and offer commission sharing to both referring agents as well as buyers’ agents. Partnering with other agents is an important part of how we do business.
M: Absolutely! We Love to pay both co-op commissions and referral fees to agents who either bring a buyer to the auction or refer a seller for the consideration of an auction. Our philosophy is that “It doesn’t matter how we split the pie, as long as we have a pie to split.” First and foremost it is our mission to put our clients needs first, and that includes offering the property to the broadest audience available, and paying other professionals for helping put the deal together.
There was actually another question about reserve vs. absolute auctions. But in the interest of space I’ve decided not to print the answers here. But feel free to call either company to get the definition. I’m sure they’d love to speak with you.