Elements of a Successful Auction, Part V

The Ability to Promote Adequately in the Marketplace

A fundamental difference between the auction approach to marketing real estate and other methods such as ordinary brokerage is the time element. When sellers approach us with an auction assignment, it is not with the idea that they want to sell it “in the next 6 months or so” or “the next year or so” as is usually the case with brokerage listings. When a seller wants an auction, they want it done now!

Realistically, the closest we can do to now! is typically about 30 days. That means 5 days to a week to develop the marketing material, and 3 weeks to implement it.

There are several tools in our kit we can use to get the word out about an auction. The first step obviously is to identify our target markets, based upon the product types, locations, specific and general market conditions, and marketing tool availability (for example, signs are not allowed in certain communities).

Developing the correct marketing mix is an imprecise science; it is based partly upon budget, largely upon past experience, and partly upon gut feelings about what might be effective.

Some items of the marketing campaign are very low cost items, such as signage or ads in Craigslist or email blasts to our internal lists. Some are more substantial, such as a large display ad in a major market newspaper, or a direct mail campaign to 10,000 names in a radius pulled by SIC code, or net worth. Online marketing can run the range from a banner ad in multiple portals to email blasts to targeted lists from industry-specific vendors to developing a Google adword campaign to PR campaigns targeting affinity groups either online or in hard media.

Although it is always possible that an auction marketing campaign can attract sufficient bidders simply by putting up signage on the property and placing the asset on our website and promoting to our email subscribers and our exposure to search engines (a very low cost), it is usually preferable to draw interest from a variety of media by spending some money to reach prospective bidders in places they do business or leisure activities. To that end, we will develop a budget to adequately reach the marketplace.

A marketing budget is very much like an insurance policy. You can spend only a little and on auction day you may not have much protection, or you can spend the optimal amount and ensure that you have reached the market and have bidders there who are ready to compete for the asset.

The ability to promote adequately in the marketplace to get that ready, willing and able crowd is a very important element of a successful auction. Let us show you how!

Elements of a Successful Auction, Part IV

The Ability to Sell for Current Market Price

This section is perhaps the most crucial element of the determinants of a successful auction. It is the area most novices to the auction profession have the greatest difficulty with (ie brokers who are trying the auction model because their model hasn’t been working to well recently).

We receive calls every day from would-be sellers who refinanced their asset at the peak of the market, whose lenders were willing to rely on hyper-inflated appraisals and to often lend amounts far in excess of the asset’s value, so that the owners could take the extra cash out of the refinance and use it for other purposes.

They tell us they have an appraisal which “proves” the asset is worth far more than they can expect to receive for it, and that in any case they now owe far more than it is worth.

Many brokers and other novices to our profession have been to auctions and seen how the price got bid up, and expect that an auction can do the same for them. In other words, they believe that the auctioneer’s gavel is like a magic wand!

In this age of easily obtainable information, bidders can often access mortgage records and sales data and quickly determine if an asset is “underwater”, and because it is well known that the majority of mortgage balances exceed the values of the assets, most private sellers are not good auction candidates.

Until the major correction of the real estate market which manifest itself most strongly beginning in 2008, financial institutions were credible sellers. However, the severity of the downturn has created a situation where even they are often unable to sell for current prices in most markets.

Lenders with sufficient reserves are able to “write down” assets over a period of time as they market them. Given sufficient time, the lenders can sell the assets once the written down book value meets the market. Since 2008, the rate at which most lenders have been able to write down their assets has not been able to keep pace with the downward drop in the market. Thus, in many cases, their inventory of assets has continued to grow, as foreclosures have hit record levels in the same time period.

Also, since many lenders rely on appraisals to justify accepting prices in the current market, they have been hamstrung by the fact that the same appraisers who were telling them the values were unrealistically high back at the peak of the bubble are now slowly beginning to accept the current market conditions. Many appraisers are still attempting to use comparables that are “bubble” comparables from years back, and do not have the methodology to value assets in the present market. This “backwards” approach to valuation may have the benefit of justifying their poor valuations at the peak of the market, but are of little help in the current market.

As auctioneers with a long history of selling assets for cash, we know the cash values of real estate better than the brokers and appraisers who have been contributing to the financial bubble. If a seller is unable to sell for the current market price, it is our duty to inform them of that, prior to engaging our marketing services. We do not believe it reflects well upon the seller or auctioneer to undergo an extensive auction marketing campaign unless they are in a position to sell the asset for the current market price.

You can trust us to get it right!