Auction method of sale show properties' real worth

Real Estate Weekly, May 11, 2005 by Oren Klein, Joshua Olshin

A recent study published by the National Auctioneers Association estimated that aggregate sales at real estate auctions grew at the rate of 13.5% in 2004 over the prior year. In 2005, Express Auction expects to see this market continue to grow at an accelerated pace as the result of three significant trends in the marketplace.

The first trend is the growing popularity of auctions. Auctions aren't new, having been documented as early as the Roman times. But their popularity is a relatively new phenomenon.

The auction method for the sales of real estate in the United States really only started to grow substantially in the early 1990's.

Among the first to take advantage of this method on a regular basis were the lenders foreclosing on the over-extended developers of the 1980's and the Resolution Trust Corp., managing the vast amounts of properties and land taken over from the failed savings and loan institutions.

Today, the auction market for real estate has grown to $65 billion-plus in sales and according to a recent study done by the National Association of Realtors, by 2010 a staggering one in every three properties will be sold using the auction method.

This tremendous rate of growth is consistent among all property types, breaking down into a growth rate of 11.1% for commercial/industrial properties, 14.1% for residential properties, and 14.7% for raw land/ agricultural.

One of the most telling signs for the newfound respect of auctions is acceptance among traditional real estate brokers.

In the New York area, Express Auction has worked with several brokerage firms, including Besen & Associates and Massey Knakal. These traditional firms--looking to best serve their clients--call upon Express Auction when the benefits of an auction (such as a quick sale) are required.

Call it the "eBay Effect." Consumers and the business world have seen the benefits of auctioning everything from cars to antiques to fine wines.

The real estate auction market has reached a critical mass within the industry and with those who dabble in the market. Over the past few years, auctioneers have experienced an almost exponential growth in the number of first-time sellers. In addition, after their first auction, the great majority of these sellers become repeat customers.

The second trend is an upgrade in the types of properties sold at auction.

There are still a great number of foreclosures and otherwise distressed properties, but today owners are increasingly turning to auction in order to sell all property types of commercial assets, including industrial facilities, residential buildings, condominiums, single-family homes, development sites, vacant land, office buildings, retail centers, hotels, restaurants and night clubs.

The mix of sellers using auctions is also broadening to estates, not-for-profit organizations, REITs, family partnerships, and most significantly--aggressive owners looking to maximize the value of their property.

Commercial real estate auction firms are getting increasingly localized and provide a broad range of advice and assistance in the sale. Auctioneers now take on and even surpass the roles of many traditional brokers in working with owners to assess the market, structure the form and terms of sale (including dealing with any legal or other technical issues), and to prepare the marketing plan, advertising copy and information packet.

After a bid is accepted and the contract is signed, auction firms such as Express Auction stay involved in shepherding the sale through to settlement.

Among the benefits of auctions are the speed of sale, the ability for the seller to set the terms, better sales price and transparency. Further, because the auction market is much more transactional then relational, the advertising and marketing is geared toward the widest possible universe of potential buyers and not limited to any single circle of clients.

The auction method is a win-win for buyers and sellers because a true market value for the property is established.

Purchasers gain the confidence that the final price is the minimum amount necessary to buy the property, while the seller receives a hassle-free sale, typically within 60 days of going on the market.