What to do when the auction fee is added to the negotiated sales price?

[aussie ken]

So, do you define the sales price of a comparable as the net proceeds to the seller or the total outlay by the buyer to acquire the property, or perhaps somewhere in between as is typical where buyers and sellers share closing costs.

The "Sales or Financing Concessions" lines are where you're supposed to acknowledge differences in the financial aspects of the transaction that would prevent the even basis comparison of the prices.

So, is it fair to say that its not whether or not the buyers premium is part of the sales price, but that you consider it in relation to the other comparables and handle it in a clear and open fashion as appropriate to make the least misleading possible comparison to the subject and the other comps.

Thanks Ray can be a bit hard to get the old head around the twists and turns sometimes...............Met we are dealing with one unarguable fact here nothing else............SOLD FOR $415,000 to the gentleman in the front row is the price. Its really simple........ dont overcomplicate the issue..............in a normal agency listing a vendor already has in place a secondary agreement that an actual PORTION OF THE MONIES RECIEVED will go to the agent.............in this case the monies recieved are the contract price. No adjustment is necessary.

 

[Metamorphic]

Met we are dealing with one unarguable fact here nothing else............SOLD FOR $415,000 to the gentleman in the front row is the price. Its really simple........ dont over complicate the issue..............

Problem is is that's not just that simple. In a normal sale, the buyer and seller agree on *A* price, with an agreed upon set of administrative costs, concessions and what not that are relatively standard through out the industry and so generally very comparable. In the auction transaction the Seller agrees to sell for a price greater than or equal to the minimum they set and the buyer agrees to buy for whatever price they bid plus the premium to the auction house. So really there's two price, the price from the buyers perspective, and the price from the sellers perspective.

But lets not loose track of what we're trying to accomplish. We're trying to understand the essence of value involved in this transaction so that we can make a same or similar basis comparison to the subject property.

If we look at the motivations of each party to try to determine which is more normally motivated, and therefor more comparable to a Conventional xfer, its clear that the buyer's motivation is more closely aligned with what we think of as a normal residential transaction. In an auction the seller is willing to put their property up for whatever it brings... very not normal IMHO. The buyer's mind set is also very different in that they're willing to sit there with a paddle and make split second decision about the biggest financial transaction of their lives, but I think average John and Jane Doe would be more favorably disposed to buying their primary residence at auction then they would be to selling their home at auction. When you're a buyer at auction you have control, when you're a seller at auction you commit yourself long before you know how the story ends. So, for that reason I see the buyer's price as being the more definitive of the value attached to the property.

You should also consider at auction the buyer is the ONLY party sitting there playing the substution game. The buyer is saying, "$415,000 plus 5% premium is $435,750, would I rather have this house here and now for that price or do I want to go offer that ammount on that listing the agent showed me the other day."

That's why I think the burdened auction price is a better reflection of market value.