Auction Sales may or may not be arms lenght, what say you?

[Ray Miller]

Case in point, over on the Auctioneers web site forum there is a debate going on between auctions feel it is ok to bid for the owner/seller on a property up to the reserve sit by that owner/seller. The other side of the coin is and this is my take as well: that it is not ok to advance the bid on behalf of the owner/seller. The market is what it is and if you have two bidders who are arms length and one stops the bidding the market is what it is and you as the auctioneer should not being advancing the bid to keep the other bidder going until the reserve is met. I feel this then is not arms length because at the point the second bidder quit bidding and you started advancing the bid for the owner, you did not have a willing seller.

Those that say if you don’t advance the bid, you are not working in the best interest of the seller that the seller is your client and you don’t represent the buyer. That you should get the highest bid possible up to the reserve. If the reserve is met that you stop bidding for the seller and if no one else bids then that is the selling point of the real estate or even in personal property auctions.

They site this practice is common at auto auctions (but only professional buyers at these and they understand the practice), some of the worlds largest auction houses do this at every auction to meet the buyers reserve. To me this is dishonest and not meeting the true meaning of market value.

If this is the case then the appraiser may never know or find out that the auctioneer had advance the bid on behalf of the buyer. Would you then use auction sales as comparables if you could or could not find out if this had taken place?

Currently it appears the auctioneers are divided about half and half.

What say you??? How would you feel as a buyer? As a seller if this had taken place?

 

[Restrain]

Take a look at the Barrett-Jackson Car auctions and tell me that they get true "market value" as we define market value. The properties are NOT offered for a reasonable period of time on the open market. The prices INCLUDE auction pressure, so there is pressure on the buyer to decide right then, right there, if he/she is going to push the value up.

Any time you have this sort of transaction, it is not market value. It is auction value. In personal property, you have various types of values, including distressed, in-place, etc. Admittedly, for M&E, auction appropaches market value. But for real estate, auction price has too many issues to be considered market value.

 

[Terrel L. Shields]

if you don’t advance the bid, you are not working in the best interest of the seller

Most property sales with reserves are well advertised in my area and the auctioneer is a local Realtor as well. That said, he advertizes and promotes the properties well usually for about 6 weeks prior to the sale and most are listed on an MLS and the dwelling is always available to look at, to pre-appraise, to have a home inspection performed.

I do not agree that an auction can never be "market value". In fact, it is a truer reflection of market value that some contrived sale with 99% financing, seller paid points, and other concessions. We have totally forgotten that such sweet heart financing was driving the market well above the breaking point...and no one denies the market "broke". It broke under the back of ultra-liberal lending practices.

The typical home buyer has cash or has arranged reasonable financing in advance which is a much truer manifestation of the term "terms equivalent to cash"..

It is the job of a ringman at the cattle auction to set in the price. Further bidding is not allowed in most states was always my understanding. So I fall on the set in bid only - no further bid.

The only real difference between cattle or cars and a dwelling is the one reason appraisers differ in the first place. Fungibility. Houses are simply illiquid compared to cars or cattle.
Auto buyers at an auction rarely can give a car a good 'going over' plus they are in the wholesale business. The auctions are often limited to dealer licensees only. Therefore, a discount is expected, just as one expects a builder to make a profit over the cost of construction. Cattle prices are true reflections of "market value" likewise not withstanding that some private treaty sale might bring somewhat more than running them thru the ring. One could even argue that in a private treaty the seller must know the buyer or the check could bounce and the cattle be long gone. Going thru the barn escapes some liability (reduces risk.) The "risk" of buying is a common denominator at a sale barn and therefore, the buyers have already factored that in. But with tens of thousands of head selling daily creates the rational, predictable and very liquid market that Real Estate lacks.

The auction of a Real Estate property is, imho, market value when the seller has a pre-determined minimum (the willing sales price) and no distress to keep that minimum low; and the buyer doesn't know what that is. My cousins recently auctioned their parents house after their death. It was pre-shown, listed, and sold for $6000 more than the minimum they had decided to take. They based the minimum upon a simple CPA's formula for cash flowing a house as a rental...9% + commission. (translated that is a GRM of 133.3) They polled the neighborhood for rent prices and estimated the rents. In my opinion, the house would have brought slightly more if you were willing to wait an average 250 days for it to sell....a period of time when the utilities remained on, the insurance had to be paid, the lawn mowed. The holding cost far exceeded the difference.
I personally would auction my home if I were to sell it for the same reason. If I decide to move, I don't want to wait months for an opportunity to sell it. If it did not sell at auction under circumstances I listed above, then perhaps I might need to re-evaluate the property. A big problem now is not the way it is auctioned but the total lack of borrower choices. There a lot of banks that simply are unwilling to lend any amount on anything.

 

[Wayne Tomlinson]

The claim by many real estate sales people that an auction sale has not been exposed to the market is just a lot of BULL in my opinion.

It is rare that an auction sale is not advertised widely prior to the auction.

Just as a buyer can be screwed by a pushy realtor so can an auction buyer.

In every case, the part of that defiinition about being well informed has to come into play somewhere.

The licensed sales person who signs on to the the buyer-broker is supposed to represent the buyer in the deal. The being the case, if that buyer broker really well represents his/her client, then they they make less money.

Have you ever had a sales person call and want the appraisal to come in lower because they think that their client offerred too much??

Neither have I.

Just whose arms length are we talking about/

Wayne Tomlinson

 

[ZZGAMAZZ]

Based upon my limited exposure to this concept, the auctioneer's fee warrants a downward adjustment; and a property that does not sell, or one that is pulled out of the auction before bidding begins, must pay the auction fee nevertheless.

 

[Joker]

Ditto Terrel's comments.

If you DON'T bid up the price to cover the reserve, then you don't have a willing seller. If you run up the bid AFTER the reserve and you have only one real bidder, then you are creating the market. If you are the auctioneer or the ringman, you better have a good system in place or you can get caught. I've seen it happen many times. Most people never catch on, but some do. Best be careful.

 

[aussie ken]

Case in point, over on the Auctioneers web site forum there is a debate going on between auctions feel it is ok to bid for the owner/seller on a property up to the reserve sit by that owner/seller. The other side of the coin is and this is my take as well: that it is not ok to advance the bid on behalf of the owner/seller. The market is what it is and if you have two bidders who are arms length and one stops the bidding the market is what it is and you as the auctioneer should not being advancing the bid to keep the other bidder going until the reserve is met. I feel this then is not arms length because at the point the second bidder quit bidding and you started advancing the bid for the owner, you did not have a willing seller.

Those that say if you don’t advance the bid, you are not working in the best interest of the seller that the seller is your client and you don’t represent the buyer. That you should get the highest bid possible up to the reserve. If the reserve is met that you stop bidding for the seller and if no one else bids then that is the selling point of the real estate or even in personal property auctions.

They site this practice is common at auto auctions (but only professional buyers at these and they understand the practice), some of the worlds largest auction houses do this at every auction to meet the buyers reserve. To me this is dishonest and not meeting the true meaning of market value.

If this is the case then the appraiser may never know or find out that the auctioneer had advance the bid on behalf of the buyer. Would you then use auction sales as comparables if you could or could not find out if this had taken place?

Currently it appears the auctioneers are divided about half and half.

What say you??? How would you feel as a buyer? As a seller if this had taken place?

Hi Ray, .....from Down Under we had the same contraversy some years ago and locally it has been ordained in state law that an auctioneer CAN place ONE and ONLY ONE vendor bid to help the auction along. Further, to prevent the auctioneer doing GHOST bids all bidders MUST be registered with the auctioneer BEFORE the auction and ALL bids must be done by CLEARLY holding aloft your auction number card...........no head nodding, blinking eyes, or delicate coughs!!!!.

 

[Ray Miller]

Hi Ray, .....from Down Under we had the same contraversy some years ago and locally it has been ordained in state law that an auctioneer CAN place ONE and ONLY ONE vendor bid to help the auction along. Further, to prevent the auctioneer doing GHOST bids all bidders MUST be registered with the auctioneer BEFORE the auction and ALL bids must be done by CLEARLY holding aloft your auction number card...........no head nodding, blinking eyes, or delicate coughs!!!!.

And the way it should be.

 

[Jim Buckner]

The auction company is working in behalf of the seller to get the best price. The buyers are free to stop bidding at any time. Seems like a square deal to me.

 

[TEL2002]

I assume a 'reserve' is the minimum amount a seller is willing to accept for the property. Why not just come out and say, "the minimum bid is $100,000" or whatever the reserve happens to be???????????? Nothing hidden & no mad bidders. If there are no bidders, the seller will get the message, & I assume the auctioneer has covered his 6 by establishing in the contract that a no bid auction will still cost the seller zzz dollars.