Land Planners Can Help Auctioneers in a Big Way

[Lispp]

Hi Auction Community:

I work for a land development company that owns 60,000 acres of land on 7 large tracts in Texas, New Mexico and Arizona.  We intend to build new master planned communities over the next 20 years.  Because of the real estate turndown, we needed to sell some non-strategic parcels.  This got me interested in land auctions.  By researching the large auction houses and attending a few events, I found myself somewhat disappointed about the entire process.  I undertsand that there are many types of sellers and buyers and all diffrenet types of budgets involved.  But for us, I think it needs to be elevated to a higher level to bring other quality properties to the table.

So I wrote down some suggestions on my blog and a reader told me about this community.  I am reposting the entry here and hope to get some feedback from the experts.  I am a newbie, but my intentions are good. The original post can be found at http://blog.onlinelandplanning.com   



Land Auctions Need to Get Better in Order to Help Find Bottom and Beat this Recession.


The importance of land auctions can not be more important than they are right now to the real estate market in general and more specifically to the recovery of the US economy. Since investment banks and the federal government can’t determine the ‘true bottom’ of what land is worth, than significant, well orchestrated land auctions over the next several months can yield a benchmark indicator based on consistent sales results of true valuation. From there, economist can prepare their charts and can reasonably predict our climb out of the cellar and get going again. To do this, the auction process itself must become more credible and distinguished to earn the right as a benchmark indicator. Here’s why, followed by what needs to be done:

- Typically, when the general public hears or sees anything about land auctions today, the word foreclosure is close behind. Television infomercials advertise bank owned properties available at low ball bids and portray previous owners as losers that left lenders holding the bag.  Although often true, this perception of mistrust permeates throughout the industry and leaves the impression of a depressing atmosphere to buy and sell property.

The frightful image of an auction event set up in a mediocre hotel ballroom hosted by a cigar chopping auctioneer in suspenders, flanked by two fold up projection screens showing aerial photographs of one property after another must be supplanted with a dignified process that aspires to the highest level of what an auction can be.

- Instead, auction houses should use property sales as an opportunity to celebrate. The notion that the seller somehow failed and that the auction house will manage the process of buyers expecting a feeding frenzy based on low bids must be dispelled. Simply portraying individual properties as “a once in a lifetime chance to buy” is not the    answer either. 

- Get the results of the auction published in a national business magazine.   Three or four portfolios of important properties owned by credible land development companies or owners make news versus a typical auction of many small individual properties that have been cobbled together.

- Auction properties must be of high quality, significant scale and recognizable to the general public based on name and location. This is important in order to draw the attention of the purveyors of the US economy and make a meaningful statement of land value. 

- The auction event itself should be unique and adopt a new format.  The process should be slowed down to a cozy, casual and comfortable pace, by eliminating pressure and allowing a chance to get a deeper understanding of the significance of the sale.  Therefore, don’t rush it – savor it for as long as possible.   Make the auction event business friendly and engage not only the bidders, but also invite curious real estate industry leaders to watch and even participate in the process with informed opinions and knowledge.

- One example would be to change the graphic format altogether. Instead, allocate a portion of the auction marketing plan budget to engage land planners to draw simple site plans or sketches for each property to show a vision of what is reasonably and physically possible, supported by market conditions and may return the highest values.  A picture paints a thousand words.

- Another example would be to create an overall theme and brand for important auctions.  Words like ‘Worldwide’ or ‘Florida’s Biggest’ miss the point. By engaging the services of graphic designers that specialize in branding and not relying on the auction house’s in house staff that is use to template, each auction becomes unique with properties sharing a common, positive identity. By adding a level of emotion and vision, it may be easier to attract other sellers and buyers to participate that share the same values.

- Last, when auction houses use related professional services to change the marketing and event atmosphere two important results occur.  First, the quality of the event itself will become relevant to the general public and allows the auction house focus on what they do best, which is the technical nuances of property disposition. Second, the circle of opportunity widens for the auction house in the future – more informed industry people become advocates of the auction process and talk about the success, more leads are generated and depending on the caliber of the professionals engaged, more investment banks and government regulators are interested in the results.

[Jim Ford]

While you may have some good ideas, in some respects, I can't quite agree with the overall consensus of your message. Of course, you would certainly like to be involved in the marketing aspect and have us utilize your services, however, one of the first questions I would propose is "who would pay for this?" After all, according to your website, it appears that your fees start at ~$9000, which would be a sizable chunk of advertising funds.

An auctioneer is going to utilize the best means of attracting buyers, based on the features of the property and its' target market. The auction method of marketing is quite effective in what it normally achieves, given those variables.

If the Seller is interested in putting out the money to draft "potential" uses for the property, in an effort give buyers ideas on how they might utilize the property, it may help to bring in other potential buyers and might even help to get a better price. However, whether the costs of developing such proposals is worth the "potential" benefit is still questionable.

Now, we also have to consider the Auction Method Of Marketing and the "hows" & "whys" of its' effectiveness and who it attracts. While there are some very well-funded people that will attend property auctions, often it must be a chance to either, get an exceptional deal or a very prime piece of real estate that is in very high demand, in order to get their attention. This includes both, investors and end-users.

For the general public and "general" investors, it is usually those that are looking to get a "deal" on a property or home. While sometimes, that "deal" may only be a little less than the "market price" (and they may have been able to negotiate the same price in a private treaty sale), it is the lure of an auction that gets them there, in the first place.

As far as, marketing to the "real estate profession", this has been and still is, a difficult market to penetrate, as most have their own preconceived perceptions of auctions and most won't hardly talk to an auctioneer, unless it is a "dump" that they can't sell on the normal market, then they may call you and expect you to work "miracles". Most real estate agents get their Seller listings and sit on them for months or years (as especially noticed in the commercial market), trying to find the right buyer that will pay their "market price". And all the while, the Seller is still paying the taxes, maintenance and other associated costs until the property is sold. Now, who is actually benefiting from this? Besides the real estate agent, who gets their highest possible commission from the sale. In addition, we must also consider that most real estate agents will first set the price on the property somewhat high, so they can come down on the price (to the real market value?) in the negotiation process, giving the buyer the perception that they are getting a better deal. At auction, the price starts low and goes up to the "real market value" and the Seller has a specific date that they can sell the property and reduce the "holding costs" or actually, use that money to market the property and get it sold quicker. So, in the end, the Seller will normally realize about the same amount, in less time, after you look at all of the factors involved.

Now, if you already own this land and have these plans and/or have developed properties, that you wish to sell, then you have features that could certainly aid in developing the marketing materials to attract potential buyers to an auction.

If you are looking for an Auctioneer that can help you put together your own Auction Marketing Plan for these properties and conduct the auction sales of this property, feel free to give me a call and I'll be glad to discuss this with you. Or, if you have clients, that you feel could benefit from the Auction Method of Marketing, call me and we can set up a meeting to discuss this with everyone involved.

Jim Ford
Professional Auctioneer & Auction Marketing for the 21st Century

[Lispp]

Hi Jim: 

First, I want to thank you very much for taking the time to write such a thoughtful reply to my post.

Without naming actual companies, I contacted four large auction houses that we "prequalified" on our own.  Each offered to package our portfolio of properties with a marketing and adverstising budget  set around $125,000 - $150,000 to be used to advertise the properties and get them to auction - each claiming to have a deep network of qulaified buyers that would potentially be interested.  Their budget breakdown included advertising costs, special marketing materials, travel costs to visit and record each site, staff time, renting the venue -basically getting the whole thing set up.  Granted, one  1/2 page ad in WSJ could cost
a bundle. 

Once I heard these numbers, I assumed that these numbers were consistent with other budgets that ahev been set with other clients and therefore a portion of these budgets could be allocated to creating a quick concept vision plan and a definitive program that prospective buyers could use to 'run the numbers' as to whether buying the land would be a good strategic investment.

I also assumed that there were many other land owners in similiar situations that have substantive holdings that also would want to join a worldwide auction and we could put our properties in together.  As you are aware, some of the largest home building companies needed to give land back to banks or find other institutional partners to reduce their costs and get land off their books when they saw trouble coming.  Since the economy has not gotten better for this industry, why haven't these properties gone to auction?  They are the high profile pieces that  other investors in this industry  and that the feds will acknowledge as 'prime properties'.

My point is in order to get the big players (and their properties) into the auction game and bring wider credibility to the process, land planning helps raise the bar.  Because these companies, in the good times are use to a caliber of service and respond to certain types of methods and processes that are traditional in land development. 

By having auction companies embrace land planning 'as an extension of services' as a part of the sales process to get to these properties it the marketplace is a worthwhile endeavor.

[Jim Ford]

I suppose I am going to have to make various assumptions, as well. So, I assume you were likely being quoted packages that only encompassed the sale of your properties. There may be significant reasons for this, also, as it could otherwise be considered a gray area in fiduciary responsibilities, especially when dealing with different sellers holdings. I'll try to explain, based on my own assumptions.

If you were charged $XX for marketing and costs associated with the sale of your properties and another seller was charged a lower amount based on a smaller quantity of properties, the 2nd seller could be considered "riding" on the funding that was charged to the 1st seller. In other words, getting a much larger exposure for their properties due to larger sums paid by the 1st seller. This could cause problems concerning the auctioneer's fiduciary duties to the sellers.

The only way that this could possibly work, is if both sellers were available at the same time and all of the costs were divided proportionately. However, it doesn't normally happen this way. So, it's usually best to represent each individual seller and give them the utmost services for their money. At least, they are getting what they are paying for. After all, the 2nd seller may not have wanted to advertise in the WSJ, as it's too costly, but if someone else is footing most of the bill, well... why not?

Now, there are some companies that tend to do this with single property sellers. They charge each one a set rate for their share of the advertising and set a date when all of the properties will be sold. However, this is usually more of the mid-low range homes, and it works better for the owners. The other side of the coin... they may be waiting from 2-6 months for their homes to be sold at auction. This sort of decreases the interest, as most are wanting to sell in a short time-frame, so there are pros & cons to both issues.

As far as BANKS! That's a completely different story. Especially in the South... I don't understand their logic and reasoning, at all. They are as difficult as getting real estate agents to understand the auction method of marketing, as both only want to give the auctioneers their dilapidated junk they can't sell in the first place and then expect us to work miracles and get a minimum price for these properties, so they won't lose any money in the deal. So, they just sit on their properties, and wait... and wait... and wait... hoping the right buyer will come along and buy them. So, as they lose money in holding costs, taxes, maintenance, etc., it's like pulling teeth to get them to consider the thought of taking them to auction, even if it means a short sale and get the property off their delinquent lists and start getting some income streaming back in to their bottom line.

I was talking to a real estate broker a few months back. A bank had listed a lot of their foreclosures with his company and he wanted to try to sell them at auction (with minimum reserves, of course). I agreed to work with him to do a sale... until he found out that he had to tell the seller (Mr. Banker) what he wanted to do. As I explained to him, that like a RE Broker, I must have a contract with the seller and the seller has to agree to the auction. That's where the deal died. The Banker would let him (Broker) sell the properties any way he wanted, but wasn't going to sign any auction contracts. State Law isn't going to let me do so any other way.

The NAR has come out and is encouraging Realtors to offer auctions as an option to their sellers. Well, a lot of the big name companies now have an auctioneer on staff, yet it is still uncommon to see any of them have an auction. Like the Banks, they think they are going to make more money if they wait for the right buyer to come along. Yet, I go over to ActiveRain.com and read all these Realtor's blogs, complaining about how bad it is and how nobody is buying or the buyers are making a low ball offer and when they try to negotiate, the buyer bails out. The buyer's have no incentive, as there's plenty of homes on the market and they are waiting for the sellers to drop their prices. Why? Because they don't know if the market has bottomed out and they don't want to be losing equity in their first year, either. So, how do you give the buyer incentive? AUCTION! They come with the hopes of getting a deal, but they also know what their bank has qualified them for... so as they hit their preconceived limit (normally less than their qualified limit) and someone else bids a little higher, it makes them rethink their maximum and rationalize 'it's only a little more'.

Now, if you figure out how to get Mr. Banker and Ms. Real Estate Agent to dispose of their preconceived notions on how they can make money in a "down market", then let me know. I've talked til I'm blue in the face. They smile, shake your hand and with a "thank you, we'll get back to you," I'm out the door and will never hear from them... until they have this "starter home" in an impoverished area, that HCAD has listed on the tax rolls for $85K and they need $65K to sell it, when it isn't going to sell for more than $50K on a good day, as the window sills are rotting and it needs painting and you can see the water marks on the walls from the last time it flooded.

Yessir, Mr. Banker/RE Broker, let me throw out my magical Auction Banner and get my special "Wizard's Gavel" and we'll cast a spell for you. Auctions DO WORK... they just don't work miracles.

Jim Ford
Texas-National Auctioneers & Auction Marketing for the 21st Century

[Lyn Liechty]

Yessir, Mr. Banker/RE Broker, let me throw out my magical Auction Banner and get my special "Wizard's Gavel" and we'll cast a spell for you. Auctions DO WORK... they just don't work miracles.

Jim Ford
Texas-National Auctioneers & Auction Marketing for the 21st Century

That says it all!  I am getting calls from people who even five years ago would not give me the time of day.  I am basically telling them that an auction is not a magic bullet that will fix all of their mistakes.  Especially after a half-dozen different realtors have screwed around with the price and the property.  Those properties have a preconceived value in the buyers mind, thanks to the various listing prices and thanks to all of the negative information on the Six O' Clock news!  Nothing worse than trying to sell a shopworn home.

Lyn Liechty, Auctioneer