Learn Why Agents & Brokers Sell Land at Auctions

Sold, to the highest bidder! If you have clients who are anxiously awaiting the sale of their property, these words might be music to your ears. Most agents are familiar with auctions as an accelerated process for selling properties through public sale, but some are not aware of the many potential benefits to the seller…and to you, the agent. In fact, there are many reasons why real estate agents and brokers sell land at auctions.

According to the National Association of Realtors, real estate auctions can provide many benefits to agents and brokers, including:

Generating a list of ready, qualified buyers for your sellers
Offering current and prospective clients and customers new selling and buying options
Increasing revenue and market share
Enhancing your image as a full-service firm or professional
Developing your own market niche and expertise that helps distinguish your services
Removing pricing uncertainty by assuring that the property will be sold at its true market value
Setting a specific date for sale and selling in a relatively short timeframe
Exposing the property to a larger pool of potential buyers
Attracting buyers to look at all of your listings, not just the auction listing
Creating referrals and return business
Generating profits for your firm by earning commissions as referring agent/broker, cooperating agent/broker, or as the listing agent/broker

While auctions often are used to sell distressed properties, they also can be a fruitful way to sell non-distressed lot and land properties. Auctions can be the right strategy for properties that will benefit from the added attention, definitive timeline, marketing focus and competitive bidding process. Many agents and brokers are realizing that an auction is a great way to help their client reach a sale.

The Role of Real Estate Agents and Brokers in Auctions

If you are not an auctioneer, you may be wondering what your role as an agent or broker would be in the auction process. It’s a common misconception in the industry that auctions are bad for business when you are an agent or broker. But the fact is, auctions can be an excellent way to reach a sale and there are many fee generating roles that you can have in an auction as an agent or broker:

Referring Agent/Broker — Referring a seller to an auction company can earn you a referral fee. If you’ve been marketing a particular property for a long time with no luck, then an auction may be the right way to help your client sell…and the referral fee would be more than you would earn if the property never sells while you have the listing.
Cooperating Agent/Broker — A cooperating (selling) agent/broker is any agent that sells the property, whether you are a subagent, buyer’s agent or dual agent. A cooperating agent will earn a commission set by the auction firm when you register a buyer who purchases the property at auction.
Listing Agent/Broker (Co-Broker) — The listing agent/broker auction role may be more attractive to those who are seeking a significant amount of involvement in the auction process. As a listing agent/broker you would be the seller’s agent, and would market the seller’s property at auction and represent the seller throughout the sale and the closing. In this scenario you’d handle many of the traditional and familiar real estate functions, and you’d share the commission based on the work done and the agreement between you and the auctioneer. As you become more experienced with auctions you may wish to take on more responsibilities in the listing agent/broker role, and earn a greater commission from doing so.

When working with a seller, you should look at a number of factors to decide if an auction is the right process for selling their property. One method is to look at 3 factors — the market, the property and the seller — and if at least 2 of the 3 variables lean toward an auction then it would be appropriate for your seller to consider an auction for selling their land (see this NAR article for more about this Two-Thirds Rule for auctions).

Key Auction Concepts for Agents & Brokers to Understand

Now that you understand what roles you can have in an auction you are on your way to being better prepared to discuss the auction option with your clients. As an agent for either a seller or buyer, make sure you fully understand how auctions work and are able to help your client evaluate whether an auction is right for them. If you have buyer clients, you should see this article for more about buying land at an auction. And if your clients are landowners and are considering an auction to sell land, here are some key points to consider:

Timeframe

Real estate auctions solidify the timeframe for the land sales process. Your client can set the date for the auction and terms for closing (often 30 days), and the timeline for the sale becomes much clearer, and typically, much faster. Whether your client has been trying to sell their property for a long time and are tired of their carrying costs, or they’ve just put the land on the market but need a quick sale, an auction may provide the certain timing that they want. Because the sale of lots and land often takes much longer than the sale of a home, for example, a shorter, definitive timeline and process may be very appealing. Uncertainty is one of the most frustrating aspects of selling real estate and the auction sale eliminates much of that ambiguity – and contract extensions!

Sense of Urgency

An auction is an exciting and intense process for both sellers and buyers. The format of the auction with a set date and a competitive bidding situation creates a sense of urgency among buyers that helps focus – and energize – the sale. Buyers are forced to prepare for bidding on a particular date with their due diligence completed and financial resources lined up. Buyers know that if they aren’t present and prepared to buy on the date of the auction, they may miss out on the opportunity to own your client’s lot or land. In contrast, you’ve probably experienced the traditional process of selling land extend over many months and break down at various points along the way.

Price

Real estate auctions create a competition among buyers and help eliminate the dreaded issue of pricing too high or too low. A minimum bid can be set to start the process, but the high bid may well exceed the price set for a traditional sale depending on the number of bidders and their enthusiasm. In a regular sales process, pricing a property too high can cause a property listing to languish; pricing too low can leave money on the table. The intention of an auction is to arrive at a true fair market value for your client’s lots or land.

Carrying Costs

Carrying costs can represent a serious drain on your client’s equity in their property over time. Many land sellers who prefer a traditional sale do so because they hope or believe that the best offer will come with time, and are afraid that an auction may force them to take a lower offer. This is certainly a point to consider carefully, but sellers also should take into account the carrying costs of the property, including taxes and maintenance, throughout a longer sales route. These costs can be significant enough to warrant serious consideration of a real estate auction.

Negotiations

Auctions allow the seller to set the terms and conditions of sale from the outset and eliminate much of the hassle of negotiations. You’ve already set the time of date of the sale, now you also can set the timeframe for closing, the amount of earnest money deposits (typically 10-20%), whether the sale is “as is” and so on. Buyers come to the sale prepared to buy on your terms and thus avoid the hassle of negotiating, which sometimes becomes emotional and frustrates buyers or sellers…to the point of killing the sale.

Market Focus

Experienced auction houses are adept at marketing real estate to potential buyers. Most use a full campaign of marketing, public relations and direct sales efforts to notify a broad pool of qualified buyers who would be interested in the auction of your client’s property. Now you’re marketing not only the features of the property, but the event of the sale on a particular date. Also, many auctions are arranged to include multiple properties, providing even greater visibility for your lot or land listings and attracting an expanded network of buyers.

If you are interested in exploring the use of an auction to sell your client’s residential lots or land, we at LotNetwork.com encourage you to research auction companies that would best meet your needs. There are national companies and local auction houses, online auction services and traditional companies.

Some terms to know related to real estate auctions:

Absolute auction: This is an auction in which the seller agrees to accept the high bid, no matter the price. Absolute auctions tend to attract a higher number of bidders, but may not work for all of your clients, like when they have costs they need to clear from a sale or a minimum profit they need to make. If your client is highly motivated to rid themselves of the property no matter what, then they may wish to consider an absolute auction.

Minimum Bid: Sellers often set a minimum bid price to ensure that the sale at least covers the costs owed or to prevent buyers from colluding to purchase the property at a deflated price. If the seller has a large amount of equity in the property and sets the minimum price well below market value, this can spur great interest from buyers. However, if the property is unique or otherwise difficult to price, market value will be a matter of perception. Setting a minimum price too high – in the eyes of buyers – will drive off some bidders.

Selling with Reserve: The seller maintains the right to reject any and all bids. This can mean that the seller has a minimum price in mind, but didn’t necessarily publish. Selling with Reserve also can mean that the seller reserves the right to bid on his own behalf (or on behalf of a lienholder) during the auction sale.

These are all terms that can be discussed with auction experts and incorporated into your contract with them. If you choose to pursue real estate auction for helping your clients to buy or sell, we wish you the best.

Related Resources:

Real estate pros, be sure to see our Real Estate Agent and Broker Resources to see how LotNetwork.com can help you sell your lot and land listings. And homebuilding and development pros can go to the Homebuilder and Developer Resources Page to find out about our features and powerful online tools that were created to meet your needs, and will help you buy and sell lots and land so you can sell new homes.

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