Online Real Estate Auctions Platforms Continue to Grow

I came across this recent article which discussed how the housing bubble in the U.S. caused the number of auctions to spike because lenders needed a quick and efficient way to move their assets.

Now that we're past that, the momentum of online auctions continues, and the biggest growth is with Commercial properties.  In fact, Ten-X reported a 20 percent increase in their Commercial sales last year.

About 70% of the Commercial properties sold last year were owned by banks, but in 2016 they see a change where 70% will be sold by private owners and 30% will be from banks.

I think that what's happening in the Commercial real estate sector with online auctions, is a precursor of what will happen in the Residential sector in the coming years.

Great news for all of us!

Hear is a link to the full article in case you're interested.

Until next month,

Tom Wood

CEO & Co-Founder

Real Estate Auction Systems

877-234-6706

Buyer's Premium - Do you charge one?

I often get asked about the use of a buyer's premium for an online auction.  How much should I charge or, should I charge one at all?

Before I share my thoughts, here is a little background on buyer premiums.

From Wikipedia...In auctions, the buyer's premium is a percentage additional charge on the winning bid at auction that must be paid by the winner.

In the auction industry, the buyer's premium came about because the auctioneer needed a way to collect a marketing fee upfront to cover the cost of advertising and running an auction as well as a way to get paid for their services.  So, instead of tacking on an additional "commission" to be paid by the seller, it was determined that sellers were more receptive to having the buyer pay for the auctioneer services by adding a buyer premium to their purchase.

So, should you charge a buyer premium on your online real estate auctions?

It depends.

In general, I feel that if you have a good way to get paid for your services without charging one, an auction will always be more appealing to a bidder when there is not one.

However, I also realize there are many cases when using a buyer premium is the best way for the auctioneer to get paid.  There are also areas in the country where a buyers premium is expected.

As an example, I'm a licensed real estate broker in my area (St. Louis, MO).  I collect a $250 marketing fee upfront and then charge the seller a 6% commission.  I do this because sellers are conditioned to paying a realtor commission and many buyers in my area are not familiar with a buyer premium.

So, it really comes down to your area, your business model and what works best for you.

Until next month.

Can properties sold at auction be inspected?

There is a common myth that properties being sold at auction cannot be inspected.

Unless a property is being auctioned by the County’s office, or if it’s a judicial auction, most properties being sold auction can usually be inspected before bidding takes place.

I always encourage buyers to do a thorough inspection and even bring inspectors with them while previewing a house being auctioned.

In fact, in some cases, I've given the buyer a 5 day inspection period after the auction ends.  Many auctioneers don't do this as it leaves you open to having a buyer back out.  However, in my area, auctions are still new and sometimes I need to get more buyers involved and comfortable with the process.

Allowing an inspection period after your auction can help your bidders be more comfortable with the process, but each property and area is different, so it really depends if it makes sense with your process.

Online Real Estate Auctions In Austraila?

You may or may not be aware that in Australia the majority of real estate is sold via the auction method.

When I first found that out about 7 years ago, I figured they would soon embrace doing them online.  Well, that hasn't really happened yet, but that could be changing soon.

I just came across this article about a house that recently sold Lilyfield Australia for $1.6 million all online.  It ran for 3 days and attracted 22 bids.

It is certainly requires less to coordinate and extends the reach of your buyer audience.  It only makes sense to take them online and will be fun to see that trend continue.

Here is a link to the full article in case you are interested.

Highest and Best - Does anyone win?

This month,  I've noticed that the market in my area of St. Louis is really starting to pick up, especially on bank owned & HUD owned properties.   More times than not, when I submit an offer for one of my investor buyers, I get a call from the listing agent letting me know they received multiple offers.  They then asked for my buyers "highest and best".

When this happens, my buyers usually ask me if I think there are truly multiple offers or just a game the agent is playing.  I sincerely believe that most listing agents are being honest, but it's hard for buyers not to be skeptical.

I advise my investors to submit what they are willing to pay, and not get emotionally attached.  It's a numbers game for them anyway.

When my buyers get their offer accepted in the "highest and best" situation, they all want to know what the other bids were and I don't blame them.

When I started in real estate, I was investor and the "highest and best" situation is why I became interested in auctions.  I much prefer to be in an open competitive situation where everyone can see the other bids.

I know my buyers would ALL prefer the auction format for these situations and I believe it would also help the banks get the best price.

Interestingly enough, we've recently been approached by listing agents looking for an online "offer" system.  They are still unsure of the word "auction", but agree that having an open "offer" solution where all the buyers can see the highest offer would be ideal.  It would also cut down on the juggling of paperwork in multiple offers situations.

Call it an "online offer" or "auction" doesn't matter to me, just glad to see traditional real estate moving in that direction.

Are the banks doing sealed bid auctions

I just noticed a new trend with bank foreclosures in my St. Louis market, maybe you've noticed it in your market?

When a foreclosed property first comes on the market, the listing agent puts in the agent remarks that no offers will be reviewed for the first 7 days.

As you can guess, the goal is to get multiple buyers competing in a "highest & best" situation and I don't think it's a bad strategy.  It creates the urgency and competition that can help the bank get the best price.

In thinking about it, I realized this is exactly how a "sealed bid" auction works.  It may be a little less structured, but the concept is the same.  Get as many buyers competing before a given deadline to produce the best price for the seller.

As always, every time I see sellers moving towards the "auction" concept to sell, no matter in what form, I'm grateful.  It truly is the best way to market and sell real estate.

$16,500 over list price is not enough?

This past week I was shocked by what happened with a bid my buyer made on a HUD owned home.

In case you're not familiar with the HUD bid process.  There is a website www.hudhomestore.com where HUD registered brokers can submit "sealed bids" for their buyers.  Typically only owner occupants can bid on HUD owned homes for the first few weeks.  If, after the owner occupant bid period ends, HUD has not accepted a bid, it then opens up to all bidders - investors included.

Well, my buyer is an owner occupant and in the construction/rehab business so he was looking for something that needed work but was in a good location with good resale potential (Owner-occupants need to live in the property 12 months before they can "flip" to a new owner).  We found, what we thought, was the perfect property.  It needed about $25-30K of work, wasn't move-in-ready, only open to "owner occupants" and was priced fair.  In addition, it was a split-level home which is not in as high demand for the area it is located.

So, when my buyer wanted to offer $16,500 over list price, I thought he was crazy.  But, he had made a few offers on other bank owned properties and was out bid, so I understood where he was coming from. I still felt his bid was way higher than it had to be, but he really wanted this house and after I looked at the numbers again, I realized $16,500 over list price was still an okay deal for him.

So, I submitted his bid before the deadline and was absolutely shocked the next morning when I found that HUD had accepted a higher bid.  Are you kidding me?  What is going on?  I couldn't believe it!

My buyer was understandably frustrated.  He was willing to bid higher, maybe even higher than the bid HUD accepted.

These experiences always make me appreciate, even more, the open online bidding process.  What a luxury for a buyer (and their agent) to know what the current bid is and to have the control to increase their bid and buy the property.  I can't wait until the open online bidding process becomes more common place.   Any chance HUD would ever change to an "open bid" process?  I won't hold my breath.

On a another note - I learned that if the buyer of a HUD home is planning to use FHA financing to purchase, the list price (FHA appraisal) is the appraisal that is used for the new FHA loan.  That means that if your buyer bids over list price, they have to come up with the difference in cash at closing.  Found that out the hard way after my buyer finally won a bid over list price on another property.