Going once … going twice … sold.
That phrase can be music to the ears of homeowners who want to sell their properties in a short period of time and are facing a slowing real estate market. It also can be a sweet sound for real estate professionals, who can work with auctioneers, sellers and buyers to receive compensation in auction transactions.
Auctioneers credit online site eBay.com for making auctions more accessible and acceptable for the masses. While real estate sales through auction account for a small fraction of total sales, auction companies have reported growth in real estate transactions. And a slow housing market is typically a ripe market for real estate auctioneers.
The value of all goods sold at live auctions jumped from $217.2 billion in 2004 to $240.2 billion in 2005, a 10.6 percent gain, according to a report produced by the auction association, and the number of auctions increased by about 5.2 percent during that time.
About $14.2 billion worth of residential real estate was sold through live auctions in 2005, up 8.4 percent from the 2004 level. Meanwhile, the value of land and agricultural real estate sold through live auction increased 7 percent in 2005 and the value of commercial and industrial real estate sold through auction grew 4.9 percent in 2005. The total number of auctions increased by about 5.2 percent in 2005 compared to 2004, the auction association also reported.
The National Association of Realtors trade group is taking note. The association, which has 1.3 million members, sent its president-elect to speak at the National Association of Auctioneers conference in July to discuss ways that both groups can work together to benefit all members.
“Online auctions of all types have played a large role in consumers’ propensity to buy items — even real estate — online. And that has helped both of our industries move forward in a very positive way,” said Pat Vredevoogd-Combs, president-elect for the Realtors group, in remarks to the auctioneers association.
“I think we all can agree that there will be a lot more inventory on the market in the months ahead. That’s where our collaboration can have the biggest impact. NAR recognizes that auctions can play an important role in how that inventory is sold.”
Internet technologies are changing the auction industry. Traditional auction companies are increasingly incorporating Internet technologies that allow online bidders to participate with in-person bidders in live auctions.
The National Association of Auctioneers, which has historically served members who are involved in these traditional onsite auctions, such as estate auctions with fast-talking auctioneers and a live audience of bidders, in March announced a broader focus and a new mission statement. The group now serves as an umbrella organization for a range of competitive bidding businesses, “including live, Internet and sealed bid auctions.”
This expansion includes “eBay sellers and other people involved in Internet auctions and other new forms of auctions,” according to the group’s announcement.
William L. Sheridan, president of the National Association of Auctioneers and president and CEO of Sheridan Realty and Auction Co. in Mason, Mich., said auctions can bring more certainty to a transaction and real estate agents are more inclined to turn to auctions when the market slows and when timing is an issue.
“In a slow market you’ll find more real estate agents inquiring about the advantages of selling by auction. If it’s a slow market that’s where you’ll find agents starting to solicit creative ideas and creative methods of selling real estate. You’ll see a few more real estate auctions — some are through a real estate agent and some are not,” Sheridan said. Some states require real estate auctioneers to carry a real estate license, he said, though Michigan does not.
Auctioneers typically ask for commission-based compensation, Sheridan said. In some cases the commission is charged to the seller; in some cases premiums are charged to buyers; and in some cases there are auctioneer charges to both parties, he said. “There is no standard.”
Because real estate auctions require that there are no contingencies in the sale contract, Sheridan said, “From a seller’s perspective they really need to have someone operating on their behalf who they can rely on and they can trust.” Typically, interested buyers will pay for a home inspection prior to making a bid, for example.
Sheridan’s company typically announces an auction about 45 days in advance, with an open house held 20 days prior to the auction and another open house held 10 days prior to auction. A property may take 20 minutes to two hours to sell at the actual auction, depending on whether it includes several parcels or is a single-family home.
Prices fetched for houses at auction tend to be highly reflective of the current market conditions. “In a fast market, when things are upbeat I’ve seen times when (sale prices are) 20-25 percent higher than expected values. Likewise, in the current slowing market prices at auction could range 15-20 percent lower than expected values,” he said. “It’s not the fault of the auction — it’s the fault of the market. The auction … brings the market to your seller at one time.”
Sheridan said his company allows Internet bidding for some of its larger real estate auctions. While some properties sold at auction are distressed properties, his company also handles other types of properties, including some mid-range and luxury properties. Michigan has been hard-hit by job losses in the automotive industry, Sheridan noted, and that has “created a lot of distress in Michigan — more so than some places.”
Vredevoogd, NAR president-elect and broker-owner for AJS Realty, a real estate company in Grand Rapids, Mich., said she believes consumers have a greater comfort level with auctions these days.
“I think that the old-school philosophy of auctions — that they were a desperation move or not legit — has all gone away because of things like eBay. A lot of people out there are getting more comfortable with the auction process,” she said. “I think the general public is becoming comfortable with the legitimacy of auctions and the comfort level of getting paid.” And auctions give sellers a definite timeline for a sale, Vredevoogd said.
The auction process can benefit real estate professionals, too, she said. “In conjunction with a marketplace that is slowing down a bit in places … we’re always looking for new ways of marketing property.” Many auctioneers are already members of the National Association of Realtors, she said. “I think there are a lot of new ideas. New things we could probably try together. We sure are opening up the discussion and dialog.”
Realtors could potentially work with auctioneers in some cases to sell items within a house that is for sale, she added, and homes first listed through auction that do not receive a sufficient bid could potentially be listed with a real estate agent at a later time. Some auctioneers who are also Realtors have worked with local Realtor associations to open up MLSs to the listing of auction properties, Vredevoogd said. “They’ve made an arrangement with their local MLS,” she said.
Vredevoogd appointed Sheridan, who is also a Realtor, to sit on the Realtor group’s board of directors. “I think we’re going to become more involved, not less involved in working with the auctioneers association,” Vredevoogd said.
“The traditional real estate industry is becoming more auction-friendly all of the time,” said Thomas L. Williams, president-elect for the National Association of Auctioneers. The adoption curve has been slow, he said, which he attributes mostly to “a lack of knowledge about the potential for auctions.” Most major real estate auction companies allow the participation of buyer-broker representation, he said, and he expects to see growing cooperation between real estate professionals and the auctioneer industry.
An owner of the Williams & Williams real estate auction site in Tulsa, Okla., Williams said he recognizes that Internet auction companies have opened consumers’ eyes to the opportunities in auctions. “There’s no question that some form of Internet interaction (in auctions) is the wave of the future. The Internet is our main way of getting the information out. It is the number one information tool we have by far for real estate auctions. I think we’re not very far from seeing the majority of auctions that are live auctions will also have Internet availability.”
The inventory of properties at RealtyBid.com, an online auction site that works exclusively with real estate agents to sell properties, has reportedly grown from 200 properties up for bid in July 2005 to 1,053 properties in July 2006.
RealtyBid.com allows agents to post properties to the auction site for $100, and the company accepts an additional 1 percent fee from the buyer once the property is sold. No for-sale-by-owner auctions are allowed at the site.
Tony Isbell, RealtyBid.com president, said that real auctions were growing even during a hot real estate market, and he expects that growth to pick up in the current market. “Typically auctions are used when things have slowed down. We think that trend will accelerate tremendously over the next five years, and we’re already seeing that within our company,” he said.
The value of properties sold at the site has been increasing, he said. While the site has sold a volume of lower-value foreclosure properties in states such as Texas, Georgia, Michigan, Ohio and Indiana, Isbell said that properties in the $500,000 to $700,000 range have recently cropped up on the site. Auctions span 14 days at the site, and bidding tends to be “fast and furious” toward the end of the bidding period, he said.
EBay deserves credit for popularizing auctions, he said. “God bless eBay. Everybody in the auction industry should be thanking them everyday. EBay has made auctions a household concept.” While there is real estate sold through eBay, that site is often used to advertise property for sale rather than to sell homes in a pure auction format, Isbell said.
There will likely be more cooperation between auction companies and real estate agents, Isbell said, though he said auctioneers will need to be more open-minded in commission-sharing with real estate professionals to attract more real estate industry interest. He explained that listing agents may receive a 20 percent referral fee for turning a sale over to auction, “giving up 80 percent of fees to get that property sold.”
Overall, the real estate auction business should continue to grow, he added. “I don’t see this letting up a bit.”
Tuan Le, a marketer who operates www.2RealEstateAuctions.com, a site that directs consumers to real estate auctions at eBay.com, said that roughly 80 percent of real estate salesthrough the eBay site are for vacant land, and so far the site hasn’t been widely used for home sales.
Texas has been a hot spot for land sales, he said, with many transactions under $1,000, he said. Also, low-priced houses are selling at the site, he said, such as a $10,000 fixer-upper in Pennsylvania. The audience at his real estate auction site is mainly investors, Le said. Homes in the Northeast and Midwest regions seem to draw the most serious interest through eBay auctions, he said.
About 33 percent of the visitors to Le’s site are from other countries he said, compared to 10 percent of visitors to his other eBay-related sites.
Le sees tremendous potential for growth in real estate sales through eBay auctions, though some real estate agents “don’t view it as a serious market right now,” he said, based on comments he heard during an eBay forum earlier this year. As property records are increasingly digital and easily accessible to consumers, Le said he expects to see more growth in online real estate sales via auction.
“Three to four years from now you will get sort of a similar look and feel in real estate as you do looking at stocks, with history and documents. You can do a little bit deeper research. You’ll see county recorder’s office and title information packaged in a more consumer-friendly way,” he said, noting that this is already happening on some level.
Catherine England, an eBay spokeswoman, said the company does not publicly report any statistics for its real estate category. She said that in addition to a basic insertion fee to post homes and land for sale at the eBay site, the company also collects a $35 notice fee for land, timeshares and manufactured homes that receive winning bids.
This fee is not charged, she said, for other residential properties and for commercial properties.
As of Aug. 10 there were 2,312 listings for land parcels at the eBay site — including 191 listings in Florida, 129 in Texas and 95 in California — and there were 1,996 total residential real estate listings at the site.