Elements of a Successful Auction, Part II

Motivated Seller

In our previous section, we spoke of strong demand as a very important element of a successful auction. Unfortunately, this scenario is pretty rare in real estate auction practice. The more typical scenario is that the seller typically considers an auction as a last resort, after having listing it unsuccessfully for a period of months or years. In these scenarios, we can pretty much rule out “strong demand” as the factor in achieving success. However, there are other factors which can create the environment for a successful auction.

Perhaps the most important of these is the perception that the seller is truly motivated to sell the asset. This may sound simple enough- normally most sellers, once they acknowledge the fact that they want to sell, are to some extent “motivated” to sell. However, in the world of real estate auctions, perception is everything, and for bidders to undergo the necessary due diligence to commit themselves to an “as-is” contract with no contingencies if they win the bid, there has to be some other factor to attract them to compete openly for the asset.

If the asset is being offered on an “Absolute” basis, with no minimums or reserves, this communicates to the bidders that the seller is committed to the auction process and that the asset will sell. The Absolute seller is definitely the embodiment of a “motivated” seller.

In the absence of an “absolute” auction, bidders also tend to take the auction more seriously if the seller is a financial institution, rather than a private seller, since the perception is the transaction is not “personal” as is the case with most private sellers or investors, and that the financial institution will let it go for the market price determined by the auction. (This is not always the case; it is the auctioneer’s job to make sure that the bank’s desired prices are attainable in the market before accepting the assignment. More on that later!)

Other examples of sellers perceived as motivated include court ordered bankruptcy sales, receivership auctions, estate auctions, corporate liquidations or partnership dissolutions, and any sale perceived to be at the order of some higher impersonal authority such as the courts.

If the property is not a high demand asset, and the seller is either not motivated or perceived that way by bidders, then no amount of auction marketing is going to attract bidders to take the offering seriously and agree to compete for it.

We want to be your auctioneer, but in the absence of a high demand asset, there has to be a credible selling story in order to attract bidders. We will be happy to meet with you to see if your situation is truly that of a motivated seller!