HOW TO QUALIFY AN AUCTION
Be sure to check out the UC webinars, Seller & Property Qualification HERE and Qualifying Auctions HERE.
Is every property a good auction prospect? No and not every seller is a good auction prospect. As a real estate professional, it is your job to understand what makes a good auction property and if your seller will be a good auction prospect. Properly qualifying an auction is the most important step in any successful auction.
One simple mantra will help you when it comes to qualifying your auctions:
“SELLERS FIRST – PROPERTY SECOND”
Seller First
You’re going to spend a large portion of your time focused on the property and price in your initial seller meeting they will inevitably want to shift the conversation to focus solely on the property, but you need to qualify the seller first. If you do a good job of qualifying your seller, the property and methodology will fall into place. The key to qualifying the seller is in discovering the seller’s motivation and determining whether they’re goal driven or price driven.
For Goal driven sellers, closing the sale is more important than the amount received from the sale. Their primary goal is not to own the property at the end of the auction.
Goal Driven Sellers:
Are financially able to sell
Want the property sold/closed
Will invest in the marketing plan
Are time sensitive (urgency)
May be frustrated by previous failures
May be taking advantage of current market
A price driven seller is more focused on the price they will receive than not owning the asset.
Price Driven Sellers:
May or may not be financially able to sell
Have typically tried other options prior to auction
Are reluctant to invest in marketing plan
Can be difficult to manage over all (talking to buyers about price before the auction, etc.)
- Why are they selling the property?
- How long has the property been for sale?
- What is the ownership structure (individual, partnership, corp, etc)?
- How long can they afford to hold the property?
- Are there monthly or annual maintenance fees or holding costs?
- What are their plans after the sale?
- What is the seller’s current financial state?
- Does the seller have the ability to sell “absolute”?
- Is the seller flexible on the sale price?
- Is seller willing and capable of paying out of pocket an amount on top of the high bid to pay off mortgage & deliver clear title?
- Is the seller capable of up-front marketing funds?
- Is the seller liked by his neighbors and the community?
- Has the seller ever had an auction?
- Has the seller ever offered this property at auction?
- What is the seller’s pain threshold?
Property Second
Next up is qualifying the property. This requires research on your part to be knowledgeable on current market value. The keys to discussing the property with your seller is keep conversation data driven and being conservative in your responses and evaluation of property and assets (the buyers will be).
Is property priced reasonably for current market condition and comparable sales?
Does the seller have realistic price expectations?
Does the seller have any equity in the property?
Are there any loans on the property (who holds mortgage)?
Does the seller have the ability to sell the property “absolute”?
Is there a current appraisal on the property (past 24 months)?
What is the tax assessed value of the property?
Has there been any recent change in the local real estate market?
What is the current condition of the property?
Are the utilities intact on the property?
Is there good, legal access to the property?
Are there factors or problems that will directly affect the fair market value (hazardous materials, easements, access, economic obsolesces, zoning, deed restrictions, historical district, etc.)?
Can it be modified or altered to increase the value or expected price? (Subdivided, etc.)
Will the property and local environment support an auction? (how are auctions viewed in the area?)
Is the property currently listed?
How long was it listed (days on market)?
Who was the broker?
Were there any offers made on the property?
Did the property receive good local and national exposure?
Are there real estate signs on the property?
How long has the property been without signs on it (freshen up)?
Does seller have any previous flyers or advertising of the property?
Disqualifying Factors
Remember, not every seller and property are good auction candidates. Just because a seller wants an auction does not mean the auction will be successful. Their answers to the questions you’ve asked in the initial consultation may disqualify them from an auction completely. If this is the case, be comfortable in walking away from an auction scenario and be prepared to offer an alternate solution (holding it as a listing for a period of time until the sellers are under the right motivations (see The Blended Real Estate Marketing Model HERE to get an idea of how this can work).
Seller expectations higher than the current market value.
Seller not willing to waiver from price expectations.
Seller is extremely overbearing leading into the auction negotiations and refuses to give control to auctioneer.
Seller has had multiple auctions with multiple firms and is not happy with past experiences and/or openly predicts failure during auction negotiation process.
Property has been listed for long period of time with no or minimal price reduction.
Seller unwilling to fully invest into a well-planned marketing program and wants to drastically cut the marketing costs.
Property is not in good condition for auction and seller will not make improvements.
Seller is not in good standing with their neighbors or the community.
Seller is not giving full disclosure and information about the property (fails to tell the whole story about the property).