Q. How often do you hold your auctions?
Ans. Our auctions are a function of obtaining assignments from sellers. We do not have a set time when to hold an auction event, but will work with our sellers to determine the best time to hold an auction. Our auction programs are generally held 60 - 90 days after receiving the commitment from the seller.
Q. Where do you hold your auctions?
Ans. Generally we hold our auctions in hotel ballrooms in close proximity to the property being auctioned. If the property is viable, we may hold an "on-site" auction. We do not hold auctions under tents or in open areas, while we can schedule an auction date we can not control the weather. Sometimes with commercial properties or special purpose properties, not easily accessed, we may hold the auction in a major city with convenient airport access.
Q. Are you limited in states or geographies for properties to auction?
Ans. No, members of the Paul A. Lynn & Associates auction team and strategic partners have over 50 years combined experience in selling properties in most of the U.S., Canada, Mexico and the Caribbean. Through our CCIM network and other affiliate and associate organizations we have real estate and/or auctioneer's licenses in all 50 states and access to international markets. We have the capacity to auction real estate over a broad geographic area, offering technical expertise and local knowledge.
Q. Do you auction personal property?
Ans. No, at Paul A. Lynn & Associates, LLC we see ourselves as real estate brokers and marketing experts that use auctions and accelerating marketing to sell real estate. There are times when some personal property may transfer with the real estate, through a "Bill of Sale". We do however have multiple relationships with other auctioneers and disposition experts that have experience in all types of personal property sales whether it be antiques in a home, fixtures in a store or equipment in a factory. Additionally we have relationships with other experts that offer extensive experience in the marketing and sale of all types of residential, commercial and special purpose real estate. Whether you want to sell equipment in a plant or antiques in a trophy home, we can put together a partnership and team with appropriate auctioneers that can provide you the specialize expertise necessary to expedite your disposition requirements.
Q. What are the major benefits of an auction for the seller?
Ans. CONTROL! In an auction environment the seller has the ability to control the offering, structure of the deal, timing (setting auction date as deadline), closing date, Title Commitment, Purchase Agreement, financing (if being offered), all while offering the property on an "As-Is, Where-is" basis, and other aspects of the sales dynamics. Buyers have the ability, however, to control price, therefore it is important to make the offering fair and commercially competitive otherwise bidders will not participate, or possibly lowball their bids.
Q. What are some of the differences between a traditional brokerage sale and an auction sale?
Ans. In a traditional sale the seller sets the price and the buyer sets the terms. Generally the buyer negotiates some period of time (30, 60, 90 or more days) to perform due diligence before the contract goes "hard". Usually the buyer will come back to the seller a couple of days before the end of the "free look" period to try and renegotiate terms or give the seller a "haircut". Sometimes this process can be extended indefinitely, freezing the property with no action for 3, 6 or more months. In an auction environment the seller sets the terms and invites all interested buyers to determine price based on those universal terms and conditions. The buyers must perform all of their due diligence prior to the auction and has no opportunity for further due diligence after the auction. The property in most cases is offered on a "As-Is, Where-Is" basis. If the bid is accepted by the Seller the earnest money goes hard immediately and must be increase to 5% - 10% of the Contract price within 5 days of the auction; the property will close in accordance with the terms of the Purchase Contract, usually 14, 30 or 45 days after the auction.
Q. What is an Absolute auction?
Ans. In an Absolute auction the property being offered is sold to the high bidder, regardless of price. While perceived as somewhat risky, in reality in an Absolute auction more buyers will participate, generating greater competition toward a higher sales price. When buyers know the Seller will sell the property they can justify the time and expense associated with participating and bidding at the auction. In cases of a portfolio sale of multiple properties we may offer a portion of the portfolio Absolute and a portion With Reserve (see below).
Q. What is a Minimum Bid auction?
Ans. In a Minimum Bid auction the property will be offered subject to a Stated Minimum Bid. If the Minimum Bid price is reached the property will sell to the high bidder at or above the Minimum Bid price. If the Minimum Bid price is not reached the seller will have the right to decide if they want to accept the bid, reject the bid or try and negotiate with potential buyers (who may or may not have been part of the auction) to purchase the property under mutually acceptable terms. Setting a Minimum Bid price for an auction is an art, not a science. We generally recommend our sellers set the Minimum Bid price at 30% - 50% below their desired price in order to encourage multiple buyers to participate in the auction and allow for the bidding to reach the desired level. The Minimum Bid price needs to be low enough so that buyers perceive the potential of a bargain and feel comfortable that the price they ultimately pay is "fair market" value.
Q. What does it mean when a property is offered "Reserve - Subject to Seller's Acceptance"?
Ans. This type of offering is known as a "Reserve" offering, while it is the perception of most Seller's this is the safest form of offering, in reality in an auction environment a Reserve sale tends to be the least effective method for getting the property sold and closed. Buyers perceive a "Reserve" auction in many cases being more like a modified negotiated transaction and will not spend the time and effort to perform the due diligence if they feel the seller is not really motivated to sell the property.
Q. What is the best method for offering the property in an auction?
Ans. As always, that depends! What is the motivation and needs of the Seller? Is there any debt associated with the property? Is there a timing consideration that is part of the auction? What is the condition of the market for competing properties? What are the dynamics of the portfolio being offered? As these questions are answered we can make recommendations to the seller as to the type of offering that will be most effective in accomplishing the seller's objectives. In some case, if multiple units are being offered (such as multiple condo units or multiple lots), we would make a recommendation to offer a portion of the units be offered either Absolute or with Minimum Bids, with the balance offered With Reserve. Every property and every Seller has different criteria and we will work with our Sellers to develop an offering strategy that is appropriate to the market and help the seller accomplish their objectives.
Q. What is Bidder's Choice bidding?
Ans. Over the years we found that in offering similar types of properties (condo units, lots or commercial properties of comparable prices) buyers have different criteria, features or attributes that were important to them. It might be height in the building, view, proximity to amenities, geography or any other number of other factors. We also observed in some cases only a couple of buyers were interested in a particular unit while multiple buyers were interested in other units. As a result we developed the process of Bidder's Choice bidding where we will place on an availability board anywhere from 2 to 10 or more similar properties and the auction is conducted in rounds of bidding.The first high bidder will select the property they want from the properties presented on the offering board. After the first property is chosen, another round of bidding is conducted and the new high bidder gets their choice from the remaining properties on the board. In effect we are expanding the number of bidders participating in each round of bidding by allowing them to choose from ALL of the available units being offered. This will generally result in more active and aggressive bidding and ultimately higher prices for the seller then may be accomplished through the process of sequential bidding (bidding individual units in order).
Q. What is the difference between a "Stand-Alone" auction and "Multi-Property" auction?
Ans. We work with sellers they may have a single property or portfolio of properties they wish to sell at auction. Additionally, a seller may have an asset that is of relative low value they want auctioned and can not justify all of the marketing costs associated with an auction event. Where an asset or portfolio justifies the required marketing budget necessary to hold the auction, we will develop an auction program for a single seller or asset; this is referred to as a "Stand-Alone" auction. Alternatively we can place multiple properties for different sellers in a "Multi-owner, Multi-property" auction program where all sellers share a portion of the total auction marketing expenses into a regional auction program, In a multi-property auction properties may be dissimilar but all sellers are able to share the costs of the auction for advertising, marketing, brochures and auction day expenses.
Q. What types of properties can be sold in an auction?
Ans. Throughout the years members of our auction team and strategic partners have identified over 50+ different property types we have sold through our auction programs. These include traditional residential properties like; Single family homes, trophy homes, condominiums (urban and resort), co-ops, development lots and many other types of residential properties: Commercial properties: Retail, office, industrial, hospitality, multi-family, single tenant NNNs, properties with current income (NOI) and vacant properties and sites: Land; lots, subdivisions, farms, future development sites: Special purpose properties; Corporate campuses, medical buildings, environmentally challenged properties, governmental agencies (schools, jails, city halls, surplus sites, right-of-ways), dock-o- miniums, air rights, notes, leaseholds. In general, any type of property that can be transferred through a buy-sell agreement can be sold in one of our auction programs.
Q. What types of sellers use Paul A. Lynn & Associates, LLC auction programs?
Ans. Throughout the years members of our team have represented all different types of Sellers. Some of these include: Banks (and other types of financial institutions); Insurance Companies; Corporations; Private sellers; REITs, Partnerships (general and limited); Family Trusts; Bankruptcy Trustees and Courts; Probate Trustees; Receivers; Special Service Providers; Governmental and Quasi-governmental entities; Chartable and other non-profit organizations; in essence any type of Seller or agent that has the authority to contract and sell real estate.
Q. Are your auction programs all the same "one size fits all"?
Ans. No, we always look back on our experience from past auctions and bring the "successful" parts of those programs into new auctions programs, we also try to learn and make each future auction better. The ultimate goal is not to have an auction but to sell the real estate for our clients (the sellers) at the highest price, in the quickest period of time. On a general basis 65% - 75% of our program is based on past successful experiences and 25% - 35% of the program is specifically customized to reflect the requirements of the seller, property, timing and current market dynamics.
Q. What type of formats do you use for your auction programs?
Ans. Depending on the property being sold and the needs of the Sellers, we have been involved in selling real estate in Live, open-outcry auctions, Sealed Bid sales, On-line internet auctions and hybrids which may combine portions of each. Depending on the property being offered a portion of the property may be sold in Sealed Bid formats, followed up by a Live open-outcry Auction. If we find the potential buyers are scattered over a large geographic area, we may hold the live auction with a direct internet feed that allows bidders from anywhere in the world to be part of the auction event. We can also set up phone bidders and simulcast events, where auctions can take place in multiple locations simultaneously. Again, the type of forum and method of offering is conditioned on how to create the most competition for the property, resulting in the best results for the seller.
Q. What are the costs to be part of an auction?
Ans. Generally there are two basic costs for a seller to auction their property(ies), advertising/marketing expenses and sales commission. Marketing expenses are an up front cost for the seller, paid prior to commencement of the auction marketing campaign to pay for the extensive and aggressive advertising and marketing campaign that is intensively conducted over a 4-6 week time period. This marketing fee is used to pay for advertising, public relations, brochures, the auction venue and other associated expenses and is presented to the seller for their approval. The amount of the marketing fee is contingent on a number of factors among which include: timing, forum, property value, and type of media required to reach potential buyers. On a general basis the marketing expense will run between 50 and 150 basis points of the value of the property to be sold. After we have had an opportunity to review the property or portfolio being auctioned, we will prepare a special report that will make specific recommendations for the marketing of the property and provide a detailed budget of the proposed marketing budget.
Upon successful sale and closing of a property a commission is paid based on a percentage of the sales price, the percentage rate of which is a negotiated fee (See Buyer's Premium below). In essence the overall transaction costs to the seller for using the auction format will be comparable or even less than a traditional brokerage transaction.
Q. What is a Buyer's Premium?
Ans. A number of years ago major art and antique auction firms started using a Buyer's Premium (BP) as a method to compensate the auctioneer and as a method to transfer some or all of the transaction costs of holding an auction to the buyer. Over the past few years BPs have been used in real estate auctions. A BP should be perceived by the buyer more like a sales tax than an impediment to their bid. In active/aggressive bidding the buyers will not consider the BP and it will be added to the high bid price to determine the gross contract or purchase price and can be part of any financing program being offered. When a BP is collected it will be used to provide all or part of the commission compensation provided to Paul A. Lynn & Associates, LLC and any other associate members of the team for their commission and/or compensation. The amount of the BP is negotiable and will be part of the discussion outlined in the Special Report and proposal.
Q. Where do you advertise and how do you find buyers?
Ans. When looking a property to auction the first question we ask ourselves is "Who is our buyer and how do we get to them"? Depending on the buyer we are trying to attract we will decide if the marketing needs to be local, regional, national or international in scope. Over the last few years the methods of getting to buyers has changed. We use Public Relations methods to get media sources to pick up stories in newspapers or on TV stations. In recent years primary methods were Wall Street Journal, local newspapers, business journals and direct mail. While these are still primary methods of advertising and promotion, we are also using new media such as email blasts, (RedNews, Property Blast, etc.) banner ads on on-line real estate publications (Globe St. NREI, Bisnow, ICSC, etc), CIEs (LoopNet, CoStar, CCIMREDEX, Catalyst, local and other CIEs) targeted radio and cable services, LinkedIn, Facebook, Twitter. We are always looking for effective methods to get to potential buyers, in a cost effective and time efficient manner.
Q. Do you work with other brokers?
Ans. We work with and cooperate with other brokers on many levels. Most readily we will work with a Buyer Broker that is representing the buyer in one of our auctions. The commission rate and registration process is specifically stated in our auction brochures and we highly encourage buyers to have representation in that our fiduciary and contractual relationship is with our Seller/client. In that real estate auctions is a very specialized form of real estate marketing, we work with other brokers looking for them to provide us referrals of their clients, listings and relationships and will share with them a portion of our fees/commissions earned and received. There are other areas where we can work with other brokers and provide compensation and fees, during the marketing campaign and auction day event.
Q. What is the term of your listing/auction agreement?
Ans. One of the misperceptions of marketing real estate in an auction is that auction day is a "one day event". In reality, we are selling valuable real estate and using the accelerated (auction) process to expedite the sale. As compared to traditional real estate marketing, the auction process will give the seller a true value "read" of the market in 90-120 days. However, the auction process is really a 4-6 month process: the initial 60-90 days is spent advertising and marketing the property, getting buyers informed about the property and getting them to participate in the auction and bid. If the property can be sold on auction day, then closing can take place 14-45 days thereafter. Sometimes the auction is used to identify potential buyers, if the property was offered subject to a minimum bid or on a reserve basis, it might be necessary to negotiate with interested buyers to reach a mutually acceptable agreement on a post auction basis. Like a more traditional brokerage listings, our relationship with the seller and the property is usually 6 months (plus or minus).
Q. How is financing handled in your auctions?
Ans. The last few years have presented probably one of the most unusual financing dynamics in modern history. Mortgage rates have been at a plateau of historic lows, hovering in the 5% +/- level, however, access to mortgages from traditional mortgage resources (banks and traditional lenders) are almost non-existent or impossible to obtain. Real estate sold in an auction is still selling real estate and leverage or a mortgage is a traditional part of the equation. In order to maximize the potential sale prices in an auction it is important to offer some type of financing component in the auction sale. The more attractive the financing terms that can be offered, the larger the buying universe and bidding competition will be, resulting in a higher prices. The three primary types of financing we are using in our auctions today (depending on property type) are: Third party financing from a bank or other type of traditional lender; Assumption of existing loan, if the assumption requirements are fairly straight forward and not overly restrictive; Seller financing, usually with an above market interest rate and short term call (3-5 years). The type and structure of any type of financing offered in the auction will be advertised and stated clearly during the auction marketing campaign.
Q. Do all your properties sell in the auction?
Ans. As always, that depends. If the property is offered on an Absolute basis, then it is considered sold when the hammer comes down! However, many sellers use minimum bid or reserve offerings for all or part of their portfolio in an auction environment. The ideal situation has the property marketed, auction held, bid price accepted and the property closed 14-45 days later. If the auction price is not accepted at the auction then it is important to look at why it did not sell. Was it price, financing, zoning, real estate taxes, structure of the offering, use/function or any other number of reasons? Alternatively, we may have been offering a portfolio (such as multiple condo units or lots) where a portion of the portfolio was sold and we have a few residual units remaining. After analyzing the situation and circumstances, including discussion with buyers that did show an interest in the property but did not bid, we will work with the seller to develop a post auction marketing strategy to sell the property. This is when our expertise as real estate brokers comes into play, it is important to realize we see ourselves as real estate brokers that use the auction to expedite the sale of the real estate; the ultimate goal is to SELL REAL ESTATE and this may take place before, at or after the auction.
|© 2011 Paul A. Lynn & Associates, LLC|